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HARVARD    ECONOMIC    STUDIES 

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HARVARD  UNIVERSITY  PRESS 
CAMBRIDGE,  MASS.,  U.S.A. 


HARVARD  ECONOMIC  STUDIES 

PUBLISHED   UNDER  THE   DIRECTION   OF 
THE  DEPARTMENT  OF  ECONOMICS 

VOL.  VI 


PUBLIC  OWNERSHIP 

OF  TELEPHONES  ON  THE 

CONTINENT  OF  EUROPE 


BY 

A.  N.  HOLCOMBE,  PH.D. 

ASSISTANT  PROFESSOR   OF   GOVERNMENT   IN   HARVARD   UNIVERSITY 


AWARDED  THE  DAVID  A.  WELLS  PRIZE  FOR 
THE  YEAR  1909-10,  AND  PUBLISHED  FROM 
THE  INCOME  OF  THE  DAVID  A.  WELLS  FUND 


CAMBRIDGE 
HARVARD  UNIVERSITY  PRESS 

LONDON:   HUMPHREY  MILFORD 
OXFORD  UNIVERSITY  PRESS 


COPYRIGHT,  IQ 1 1 
BY  THE  PRESIDENT  AND  FELLOWS  Of  HARVARD  COLLEGE 


€o 


266922 


"  Je  ne  propose  rien,  .  .  .  j'expose." 

DUNOYER:  De  la  Liberte  du  Travail. 


PREFACE 

COMPETITION  in  the  telephone  business  has  existed  for  nearly  a 
score  of  years  in  a  large  part  of  the  United  States.  By  the  expira- 
tion of  the  fundamental  telephone  patents  in  1893  the  legal  barrier 
to  active  telephone  competition  was  removed,  and  to  the  American 
public  at  that  time  competition  seemed  the  promptest  and  most 
effective  method  of  regulating  the  then  existing  telephone  monop- 
oly. Until  the  general  economic  crisis  of  1907  the  contest  was  hotly 
waged  between  the  " Bell"  and  the  "Independents."  Since  then  a 
tendency  has  developed  towards  monopoly  conditions  in  the  tele- 
phone industry.  To-day,  in  view  of  the  altered  conditions,  the 
public  is  reconsidering  the  policy  of  competition  as  applied  to  tele- 
phones. 

The  alternative  to  competition  is  legal  monopoly,  either  public 
or  private.  Either  involves  the  active  participation  of  the  govern- 
ment in  the  management  of  the  business.  If  the  policy  of  private 
monopoly  is  adopted,  the  government  may  establish  special  rules 
in  the  form  of lt franchises"  for  the  guidance  of  the  managers  of  the 
private  monopoly,  or  general  rules  in  the  form  of  regulation  acts 
with  public  utilities  commissions  for  their  enforcement.  If  the 
policy  of  public  monopoly  is  adopted,  the  government  may  set  up 
special  public  authorities  to  manage  the  business  in  accordance 
with  general  rules  laid  down  by  law,  or  commit  it  to  the  charge  of 
the  postal  authorities.  In  the  hope  that  a  knowledge  of  European 
experience  with  telephones  might  aid  in  the  solution  of  the  public 
problem  which  the  American  community  must  face,  the  investi- 
gation was  begun  which  has  resulted  in  this  book. 

In  Europe  various  policies  towards  the  telephone  industry  have 
been  adopted :  free  competition  between  private  telephone  systems; 
competition  between  a  private  system  and  a  governmental  system ; 
governmental  regulation  of  private  monopolies;  and  municipal  and 
national  ownership  of  governmental  monopolies.  This  book  has 
not  been  written  to  prove  that  any  one  mode  of  conducting  the 


x  PREFACE 

telephone  business  is  the  best  for  all  countries  and  under  all  cir- 
cumstances. I  have  simply  tried  to  set  forth  without  prejudice  the 
results  of  European  experience  in  the  conduct  of  the  business.  My 
object  is  to  make  available  the  evidence  upon  which  the  reader 
may  form  his  own  opinion  of  the  value  of  the  various  policies  that 
have  been  adopted.  When  it  has  seemed  instructive  to  do  so,  I  have 
not  hesitated  to  make  comparisons  between  American  and  Euro- 
pean conditions;  but  the  purpose  has  always  been,  not  to  propose 
alterations  in  the  contemporary  American  policy  towards  the  tele- 
phone industry,  but  to  make  more  clear  the  nature  of  the  European 
situation.  The  aim  is  not  to  show  that  a  particular  mode  of  con- 
ducting the  telephone  business,  —  say  free  competition  or  public 
ownership,  —  is  in  the  abstract  the  best,  but  to  show  how  in  prac- 
tice various  forms  of  industrial  organization  actually  have  worked. 
In  order  to  accumulate  the  necessary  evidence,  the  official 
reports  of  telephone  companies  and  administrations  have  been 
studied,  as  well  as  the  parliamentary  debates  upon  telephone 
affairs,  the  technical  periodicals  dealing  with  the  telephone  indus- 
try, and  the  pamphlets  and  books  on  the  subject.  Conversations 
have  been  had  with  telephone  officials,  both  in  public  and  in  pri- 
vate systems,  in  high  and  in  low  position,  in  favor  of  and  opposed 
to  each  of  the  several  modes  of  conducting  the  telephone  business; 
with  technical  experts  and  inventors  not  employed  directly  in  any 
system;  with  labor  leaders  whose  chief  interest  in  the  telephone 
was  as  a  source  of  employment  to  wage-earners;  with  business  men 
and  other  telephone-users,  and  with  economists  and  officials  whose 
interest  lay  largely  in  the  form  of  industrial  organization  of  the 
telephone  business.  To  write  the  book  would  have  been  impossible 
without  the  cordial  support  of  practical  telephone  men.  I  am 
under  deep  obligations  to  many  more  of  these  than  can  be  named 
here.  Telephone  officials,  both  in  the  public  and  in  private  service, 
have  placed  their  stores  of  information  at  my  disposal,  and  have 
given  generously  of  their  ripe  experience  and  trained  judgment. 
My  obligations  cannot  be  expressed  to  them  all  individually.  Yet 
I  cannot  neglect  the  opportunity  to  record  my  appreciation  of 
them  as  a  class.  If  this  book  does  no  more  than  to  aid  in  the  estab- 
lishment of  more  general  confidence  in  the  efficiency  and  loyalty 


PREFACE  xi 

of  the  trained  administrator  and  technical  expert,  whether  in  the 
employ  of  a  private  or  of  a  public  monopoly,  the  labor  of  writing 
will  have  been  repaid.  There  is  one  telephone  man  who  must  be 
mentioned  by  name.  I  cannot  send  this  book  into  the  world  with- 
out recording  my  gratitude  to  and  esteem  for  Colonel  Emil  Frey, 
formerly  president  of  the  Swiss  republic  and  recently  director 
of  the  international  telegraph  bureau  at  Berne. 

Originally  undertaken  as  a  thesis  for  the  degree  of  doctor  of 
philosophy  at  Harvard  University,  the  book  has  been  completed 
with  the  aid  and  encouragement  of  university  teachers  in  five 
countries.  To  several  of  these  a  special  debt  of  gratitude  must  be 
acknowledged:  Professor  Gustav  Schmoller  of  Berlin,  Professor 
Lujo  Brentano  of  Munich,  and  above  all  Professor  F.  W.  Taussig 
of  Harvard. 

A.  N.  HOLCOMBE. 

CAMBRIDGE,  MASSACHUSETTS,  December  i,  1910. 


ORIGIN  OF  EUROPEAN  STATE  TELEGRAPHS  7 

the  age  of  electricity  with  Benjamin  Franklin's  spectacular  experi- 
ment with  the  kite.  But  a  long  period  intervened  before  the  myste- 
rious force  which  Franklin  first  drew  from  the  sky  could  be  har- 
nessed to  the  uses  of  man.  It  was  not  till  after  more  than  half  a 
century  that  the  first  electrical  telegraph  was  constructed.  In  1809 
Professor  Sommering  of  Munich  constructed  an  electro-chemical 
telegraph,  which  he  operated  by  the  aid  of  thirty-five  wires.  The 
inventor  was  thoroughly  convinced  of  its  superiority  over  the  opti- 
cal telegraph.  "Its  application,"  he  wrote,  "is  not  restricted  to 
the  daytime,  but  may  be  extended  to  the  hours  of  darkness;  neither 
clouds  nor  mists  interfere  with  its  operation;  it  covers  any  distance 
without  the  use  of  relays ;  it  speaks  a  secret  language  and  its  speed 
is  beyond  calculation."  1  But  it  was  not  by  the  way  of  electro- 
chemistry that  the  optical  telegraph  was  destined  to  be  superseded. 

Sommering's  method  was  rendered  obsolete  by  the  marvellous 
discoveries  that  shortly  followed  in  the  field  of  electro-magnetism. 
The  new  era  really  began  in  1819  with  Oersted's  chance  discovery 
of  the  relationship  between  the  galvanic  current  and  magnetism. 
It  terminated,  at  least  for  telegraphic  purposes,  in  1831  with 
Faraday's  final  statement  of  the  laws  of  induction.  Thereafter 
progress  was  rapid.  Professors  Gauss  and  Weber,  at  Gottingen, 
performed  their  celebrated  experiment  with  an  electro-magnetic 
telegraph  in  1833.  The  new  ideas  quickly  spread.  William  Cooke, 
a  young  Englishman  then  studying  on  the  Continent,  witnessed 
an  experiment  in  telegraphy  at  a  scientific  lecture  at  Heidelberg 
in  1836.  He  recognized  at  once  the  practical  value  of  the  device 
for  railroad  service  and  invented  an  appliance  for  restoring  the 
needles  with  which  the  signals  were  given  to  their  original  condi- 
tion when  the  magnetic  current  should  release  its  hold.  Returning 
to  England,  he  allied  himself  with  Professor  Wheatstone,  but  their 
instrument  was  still  too  crude  for  practical  application.  The  next 
year  the  two  succeeded  in  telegraphing  experimentally  from  the 
Euston  railroad  station  at  London  to  another  point  on  the  line. 

Meanwhile  in  the  United  States  Morse  was  already  at  work 
independently,  using  an  electro-mechanical  recording  device  in- 

1  Handbuch  der  Elektrotechnik.  Band  12.  Telegraphic  und  Telephonic,  2nd 
edit.,  p.  9. 


8  PUBLIC  OWNERSHIP  OF  TELEPHONES 

stead  of  a  set  of  needles  or  indicators  to  reproduce  the  message. 
In  the  same  year,  1837,  but  somewhat  later  than  Wheatstone  and 
Cooke,  he  performed  his  first  successful  experiment.  Simulta- 
neously Steinheil  at  Munich, "who  had  also  been  working  on  the 
problem,  discovered  that  the  earth  could  be  used  to  conduct  the 
electric  current  back  to  its  source,  thus  dispensing  with  the  use  of 
a  second  wire  to  complete  the  circuit.  An  illustration  of  the  re- 
markable need  for  the  more  rapid  transmission  of  intelligence  at 
that  time  is  the  fact  that  seven  years  later,  when  Morse  sent  his 
famous  message  from  Baltimore  to  Washington,  he  still  employed 
two  wires  to  complete  the  electric  circuit.  In  all  three  countries 
experimentation  went  on  apace,  inventors  in  each  country  having 
little  or  no  knowledge  of  what  was  going  on  in  the  others.  In  1840 
Morse  invented  the  key  and  the  alphabet  called  after  his  name. 
These  devices  made  his  telegraph  by  far  the  simplest  and  the  most 
efficient  in  existence.  Yet  so  slowly  were  ideas  disseminated  in 
those  days  that  it  was  ten  years  before  the  first  Morse  instruments 
were  introduced  into  Germany.1  Their  superiority  was  then  im- 
mediately recognized  and  they  quickly  replaced  all  other  models. 

In  the  United  States  and  in  Great  Britain,  as  soon  as  the  tele- 
graph had  been  demonstrated  to  be  something  more  than  a  scien- 
tific toy,  it  was  taken  up  and  rapidly  exploited  as  a  commercial 
enterprise.  The  Electric  Telegraph  Company  bought  up  Wheat- 
stone  and  Cooke's  patents  in  1846,  and  quickly  covered  the  country 
with  a  network  of  lines.  Within  eight  years  several  other  com- 
panies had  been  organized  to  compete  with  the  pioneer  company 
and  the  telegraph  systems  had  attained  an  extent  of  over  twenty- 
five  thousand  miles.2  In  the  United  States  the  organization  of 
competing  companies  was  still  more  rapid  and  the  development 
made  even  greater  headway. 

On  the  Continent  of  Europe  it  was  otherwise.  Commercial 
telegraph  companies  did  not  spring  into  existence.  Speculative 
business  men,  fired  with  the  desire  to  exploit  the  new  invention, 
simply  failed  to  present  their  appearance.  Here  and  there  a  small 

1  Werner  von  Siemens:  Lebenserinnerungen,  p.  83.  Schottle  (p.  146)  gives  the  date 
as  1847. 
*  Knies,  p.  147- 


ORIGIN  OF  EUROPEAN  STATE  TELEGRAPHS  9 

local  railroad  experimented  with  the  new  invention  for  signal  pur- 
poses, but  that  was  all.  The  general  public  showed  no  desire  to 
share  in  the  use  of  this  time-saving  contrivance,  seeming  well  con- 
tent to  go  on  doing  business  in  the  old  way.  The  public  adminis- 
trative and  military  authorities  alone  displayed  any  active  interest 
in  the  improvement  of  existing  means  of  communication. 

In  France  the  first  electric  telegraph  line  was  constructed  in  1845 
by  the  government  for  its  own  purposes.  Like  the  existing  optical 
telegraphs,  this  line  was  not  open  to  the  public.  A  year  or  two  later 
a  railroad  company  established  a  short  line,  for  operating  purposes 
only,  from  Versailles  to  St.  Germain.  Further  private  construction 
was  forbidden  by  the  government,  nor  does  this  action  appear  to 
have  occasioned  any  outburst  of  adverse  criticism.  In  the  middle 
of  the  nineteenth  century  war,  both  foreign  and  domestic,  was 
never  a  remote  contingency  in  European  politics.  The  powers 
that  were  had  every  incentive  to  prevent  an  important  military 
and  political  instrument  from  passing  beyond  their  control,  to  fall 
perhaps  into  improper  hands.  Self-preservation  is  ever  the  first 
principle  of  statecraft.  The  French  acted  upon  it.  Thus  the  Min- 
ister of  the  Interior,  Lacave-Laplagne,  declared  in  the  French 
Chamber  of  Deputies,  July  12,  1847,  "La  telegraphic  doit  £tre  un 
instrument  politique,  et  non  un  instrument  commerciale."  The 
same  attitude  was  maintained  by  the  administrative  authorities 
after  the  fall  of  the  July  Monarchy  and  the  rise  of  the  Second 
Republic.  Thus  Leon  Faucher,  the  Minister  of  the  Interior,  de- 
clared in  the  Chamber  of  Deputies,  April  4,  1849:  "La  question 
est  politique  avant  d'etre  commerciale."  He  accordingly  refused 
to  open  the  telegraph  system  to  the  public. 

By  1847  the  French  military  authorities  were  convinced  by 
their  own  experiments  of  the  superiority  of  the  electro-magnetic 
over  the  optical  telegraph.  But  since  they  already  possessed  an 
unrivaled  system  of  communication  by  the  latter  means,  they 
could  better  afford  to  await  further  developments  than  could  their 
rivals. 

In  Germany  the  situation  was  different.  In  the  south  there  was 
no  one  commanding  power  with  great  interests  to  be  jealously 
guarded.  Private  enterprise  had  an  opportunity  to  show  what  it 


10  PUBLIC  OWNERSHIP  OF  TELEPHONES 

could  do.  It  did  practically  nothing.  A  few  short  railroad  lines 
were  put  up  experimentally,  but  of  ordinary  commercial  construc- 
tion there  was  none.  In  Saxony,  in  1847,  the  newspapers  contained 
rumors  of  the  formation  of  a  company  to  build  a  line  between 
Dresden  and  Leipzig,  but  nothing  ever  came  of  it.1  In  some  of  the 
South  German  states  the  question  of  private  or  public  ownership 
never  even  arose,  since  the  railroads,  the  only  commercial  under- 
takings which  felt  the  need  of  rapid  telegraph  service,  were  them- 
selves in  the  hands  of  the  public  authorities.  Thus  in  Wurtemberg, 
where  the  government  had  built  its  own  railroads  despairing  of 
ever  getting  an  adequate  system  by  relying  on  the  unaided  efforts 
of  private  enterprise,  a  telegraph  signal  service  was  quietly  in- 
stalled by  the  state  railroad  management  without  even  attracting 
the  notice  of  the  public.2 

In  Prussia,  political  considerations  had  more  weight,  and  the 
military  authorities  displayed  from  the  first  a  keen  interest  in  the 
new  invention.  The  defects  of  the  optical  telegraph  and  the  ad- 
vantages of  improving  it  were  clearly  recognized.  In  1846  a  mili- 
tary commission  was  appointed  to  investigate  the  possibilities  of 
electrical  telegraphy,  and  an  experimental  line  was  built  from 
Berlin  to  Potsdam.  Werner  Siemens,  who  afterwards  became  the 
head  of  the  great  electrical  house  of  Siemens  and  Halske,  was  at 
that  time  a  young  officer  in  the  Prussian  army  and  played  an 
important  part  in  this  early  experimental  work.3  In  the  fc Rowing 
year,  convinced  of  the  future  of  electrical  telegraphy,  Siemens 
resigned  his  commission  in  the  army  in  order  to  found  a  private 
telegraph  construction  works.  The  military  authorities  shared 
his  sanguine  views  of  the  usefulness  of  the  new  invention,  and  in 
1848  re-enlisted  Siemens'  services  in  order  to  carry  out  the  con- 
struction of  the  most  urgent  lines  of  the  comprehensive  system 
which  they  had  planned.  In  February,  1849,  he  completed  the 
line  between  Berlin  and  Frankfort-on-the-Main,  in  order  to  estab- 
lish rapid  communication  between  the  Prussian  capital  and  the 
seat  of  the  ill-fated  German  National  Congress.  Further  construc- 
tion was  pushed  with  vigor.  The  optical  telegraph  line  to  Coblenz 

1  Schottle,  p.  152.  *  Ibid.,  p.  216. 

3  Werner  von  Siemens:  Lebenserinnerungen,  pp.  43,  68. 


CONTENTS 

INTRODUCTION 
I.  THE  ORIGIN  OF  THE  EUROPEAN  STATE  TELEGRAPHS 

Invention  of  the  optical  telegraph      ...........  3 

Optical  telegraphy  under  Napoleon    ...........  4 

Military  telegraph  systems  after  1815     ..........  5 

Defects  of  optical  telegraphy     .............  6 

Invention  of  the  electro-chemical  telegraph      ........  7 

Introduction  of  the  electro-magnetic  telegraph  into  England  ...  8 

into  France  ..................  9 

into  Germany  .................  10 

into  Austria      .................  u 

into  Belgium  and  Holland  .............  12 

into  Switzerland    ................  13 

into  other  parts  of  Europe      ............  14 

Reasons  for  public  ownership  of  telegraphs      ........  15 

PART  I.  PUBLIC  OWNERSHIP  OF  TELEPHONES  IN  GERMANY 


II.  foE  PROMOTION  OF  TELEPHONE  UNDERTAKINGS  BY  THE  TELEGRAPH 

AUTHORITIES 

Business  enterprise  in  Germany     ............  19 

Character  of  the  early  management  of  the  telegraphs    .....  20 

Introduction  of  the  telephone  into  the  German  telegraph  system  22 

Establishment  of  exchange  systems    ...........  24 

of  other  forms  of  service     .............  25 

Introduction  of  telephone  into  Wurtemberg     ........  27 

Extension  of  service  in  Wurtemberg  ...........  30 

Introduction  of  telephone  into  Bavaria  ..........  31 

Extension  of  service  in  Bavaria      ............  34 

Introduction  of  telephone  into  Luxemburg  .........  36 

III.  THE  DEVELOPMENT  OF  THE  TELEPHONE  BUSINESS  BY  THE  TELEGRAPH 

AUTHORITIES:  RELATIONS  WITH  THE  PUBLIC 

Organization  of  the  telegraph  administration  ........  37 

Control  of  administration  by  the  Reichstag     ........  39 


xiv  CONTENTS 

Organizations  representing  telephone  users:  chambers  of  commerce  40 

chambers  of  agriculture 41 

chambers  of  arts  and  crafts 41 

chambers  of  labor 42 

Digression  on  railway  councils  in  Prussia 43 

Organization  of  railway  councils  in  Bavaria  and  Wurtemberg  .  45 

German  theory  of  organization  of  economic  interests 47 

IV.  THE  DEVELOPMENT  OF  THE  TELEPHONE  BUSINESS  BY  THE  TELEGRAPH 

AUTHORITIES:  WORKING  OF  THE  MACHINERY 

Operation  of  German  economic  organizations 49 

Policy  of  supply  of  facilities  under  guarantee  from  users    .     .     .     .  51 

Criticism  of  this  policy 54 

General  satisfaction  of  telephone  users 57 

Operation  of  policy  with  regard  to  exchange  service 60 

Development  of  rural  telephone  service  in  Wurtemberg     .     .     .     .  61 

Summary  of  chapter 63 

V.  THE  DEVELOPMENT  OF  THE  TELEPHONE  BUSINESS  BY  THE  TELEGRAPH 

AUTHORITIES:  TECHNICAL  PROGRESS 

Technical  progress  under  public  ownership 65 

Technical  progress  in  German  telephone  service 68 

The  automatic  switchboard 70 

The  province  of  the  technical  expert 72 

Good  understanding  between  telephone  administration  and  tele- 
phone users 74 

VI.  THE  RELATIONS  BETWEEN  THE  TELEPHONE  AND  OTHER  BRANCHES 

OF  THE  GERMAN  ELECTRICAL  INDUSTRY  TO  THE  ACT  OF  1892 

Rise  of  the  power-circuit  industry 76 

Interference  with  operation  of  telephone  circuits 78 

Attitude  of  German  telephone  administration 79 

Investigation  by  the  Elektrotechnischer  Verein 80 

Criticism  of  early  German  policy 82 

,    Introduction  of  the  electric  street  railway 84 

Break-down  of  the  policy  of  the  telephone  administration  ....  87 

The  telephone  administration  appeals  to  Reichstag  for  protection  89 

Opposition  of  the  power-circuit  interests 90 

Attitude  of  the  German  municipalities 93 

The  act  of  1892 95 


CONTENTS  XV 

VII.  THE  RELATIONS  BETWEEN  THE  TELEPHONE  AND  OTHER  BRANCHES 

OF  THE   GERMAN  ELECTRICAL   INDUSTRY  AFTER  THE  ACT 

OF  1892 

Results  of  the  act  of  1892 97 

Discontent  of  the  municipalities 98 

Attitude  of  the  courts       100 

Act  of  1899 102 

Results  of  the  act  of  1899 104 

Comparison  of  the  German  and  American  situation 105 

Effect  of  the  German  policy  upon  development  of  power-circuit 

industry 106 

Panic  of  1902  and  reorganization  of  the  electrical  industry     .     .     .  107 

Significance  of  the  events  of  1902 109 

VIII.  THE  RATE-POLICY  OF  THE  GERMAN  TELEPHONE  ADMINISTRATION: 

THE   THEORY  OF  REASONABLE  RATES 

What  is  a  reasonable  rate  ? 112 

Cost  of  service  as  a  basis  of  reasonableness 112 

Utility  of  service  as  a  basis  of  reasonableness 114 

Conflicts  of  interest  between  different  classes  of  users 116 

Effects  of  increase  of  number  of  subscribers 117 

Definition  of  a  reasonable  rate 121 

Inherent  difficulty  in  maintaining  reasonable  rates 122 

Theory  of  competitive  rates 1 23 

Economy  of  monopoly 124 

Determination  of  monopolistic  rates 127 

IX.  THE   RATE-POLICY   OF   THE   GERMAN   TELEPHONE   ADMINISTRATION: 

THE  ORIGINAL  FLAT  RATES 

Early  German  rates 129 

Criticism  of  early  German  rates 132 

Agitation  for  reduction  of  rates 133 

Reductions  in  South  Germany 134 

Nature  of  early  movement  for  reductions 136 

Ineffectiveness  of  early  agitation  in  the  empire 138 

Explanation  of  this  ineffectiveness 140 

Greater  effectiveness  of  later  agitation 141 

Proposals  for  revision  of  telephone  rates 144 

Reception  of  proposals  by  Reichstag 147 

Imperial  act  of  1899 151 


xvi  CONTENTS 

Revision  of  rates  in  Bavaria 153 

in  Wurtemberg 155 

X.  THE    RATE-POLICY    OF    THE    GERMAN    TELEPHONE    ADMINISTRATION: 

THE  INTRODUCTION  OF  MEASURED   SERVICE 

Effect  of  revision  of  rates  of  1899 157 

Demand  for  further  revision  in  Wurtemberg 160 

in  other  parts  of  Germany 162 

Administration's  case  for  further  revision  of  rates 164 

Administration's  proposals  for  further  revision 166 

Finances  of  Bavarian  telephone  service 170 

Attitude  of  economic  interests  towards  proposals 173 

Attitude  of  telephone  administration  towards  its  critics     .     .     .     .176 

Criticism  of  administration's  proposals 177 

Present  rate-policy  of  telephone  administration 181 

XI.  THE  LABOR  SITUATION  IN  THE  GERMAN  TELEPHONE   SERVICE 

Labor  problem  under  public  ownership 183 

Absence  of  independent  political  movement  by  public  employees  185 
Development  of  class  consciousness  among  public  employees .     .     .  187 

Treatment  of  employees  by  state 187 

Formation  of  associations  of  public  employees 190 

Early  attitude  of  postal  authorities 192 

Subsequent  relations  between  postal  administration  and  employees  196 

The  laborers'  union  in  1907 198 

Revision  of  wages 199 

Criticism  of  attitude  of  German  telephone  administration  towards 

its  employees 200 

Proposal  for  organization  of  chambers  of  labor 202 

Attitude  of  administration  towards  socialists 204 

Summary  of  labor  situation  in  German  telephone  service  ....  206 

PART  II.  PUBLIC  OWNERSHIP  OF  TELEPHONES  IN  SWITZERLAND 

XII.  DEVELOPMENT  OF  THE  Swiss  GOVERNMENTAL  TELEPHONE  SYSTEM 
The  telephone  declared  a  part  of  the  state  telegraph  monopoly  .     .211 
Grant  of  a  concession  to  the  Zurich  telephone  company    .     .     .     .212 

Establishment  of  exchanges  by  the  government 213 

Rapid  development  of  telephony  in  Switzerland 214 

Early  criticisms  of  the  Swiss  service 215 

Policy  with  regard  to  inter-urban  lines 217 


CONTENTS  xvii 

Policy  with  regard  to  rates 218 

Proposals  for  the  revision  of  rates 219 

The  rate  act  of  1889 222 

Operation  of  policy  with  regard  to  inter-urban  lines 225 

Revival  of  agitation  for  reduction  of  rates 227 

Federal  council's  proposals  for  a  fresh  revision 228 

The  rate  act  of  1894 230 

Xin.  FURTHER  DEVELOPMENT  OF  THE  Swiss  TELEPHONE  SYSTEM 

Financial  condition  of  telephone  system  in  1895 232 

Use  of  private  property  for  telephonic  purposes 233 

Relations  between  telephone  administration  and  other  electrical 

interests 234 

The  act  of  1889 236 

Growth  of  power-circuit  undertakings 237 

Introduction  of  metallic  circuits 238 

The  act  of  1902 240 

Deficit  in  Swiss  telephone  system 243 

Disappearance  of  deficit 245 

Recent  policy  of  telephone  administration 246 

Recent  growth  of  telephone  system 248 

Financial  condition  of  system 249 

Results  of  Swiss  telephone  policy 250 

XIV..  THE  LABOR  SITUATION  IN  THE   SWISS  TELEPHONE  SERVICE 

Trade-unionism  and  socialism  in  Switzerland 253 

Conditions  of  employment  in  Swiss  telephone  service 254 

Agitation  for  improvement  of  conditions  of  employment   .    .     .     .255 

Attitude  of  the  Federal  Council 258 

Present  policy  of  the  Federal  Council 260 

The  Federal  Council  a  "model  employer" 262 

PART  III.  PUBLIC  OWNERSHIP  OF  TELEPHONES  IN  FRANCE 

XV.  PRIVATE  OWNERSHIP  OF  TELEPHONES  IN  FRANCE 

General  reliance  upon  private  enterprise  outside  of  Germany  and 

Switzerland 267 

Introduction  of  telephone  into  France 268 

Cahiers  des  charges  of  1879 269 

Consolidation  of  the  competing  companies 271 

Construction  of  exchanges  by  the  postal  administration    .    .    .    .273 


xviii  CONTENTS 

Posture  of  affairs  in  1888 275 

Attempts  to  solve  the  telephone  tangle 277 

Termination  of  private  ownership  of  telephones  in  France     .     .     .279 

XVI.  THE  DEVELOPMENT  OF  THE  FRENCH  GOVERNMENTAL  TELEPHONE 

SYSTEM 

Organization  of  French  governmental  system 281 

The  chambers  of  commerce 282 

French  finances 284 

Financial  management  of  telephone  business 285 

Change  of  financial  policy  in  1889 287 

Operation  of  the  Limoges  plan 289 

Criticism  of  the  Limoges  plan 290 

Recognition  of  the  defects  of  this  plan 293 

Attempt  of  Millerand  to  remedy  these  defects 295 

Results  of  Millerand's  policy 298 

Make-shift  policy  under  his  successor 301 

Crisis  of  1905       . 303 

Results  of  the  crisis 305 

Criticism  of  French  telephone  administration 308 

XVII.  THE  RELATIONS  BETWEEN  THE  TELEPHONE  AND  OTHER  BRANCHES 

OF  THE  FRENCH  ELECTRICAL  INDUSTRY 

The  decree  of  1888 310 

Telegraph  authorities  and  the  municipalities 311 

The  law  of  1895 314 

The  electrical  commission 316 

The  law  of  1906       318 

Results  of  the  French  legislation 319 

Digression  upon  British  state  telegraphs 322 

Policy  of  other  European  countries 326 

Municipal  ownership  of  telephones  in  the  Netherlands  .     .    .     .327 

XVIII.  THE  RATE-POLICY  OF  THE  FRENCH  TELEPHONE  ADMINISTRATION 

The  early  governmental  rates 328 

Revision  of  early  rates 330 

Agitation  for  reduction  of  rates 332 

Financial  results  of  French  rate-policy 335 

XIX.  THE  LABOR  SITUATION  IN  THE  FRENCH  TELEPHONE  SERVICE 

Comparison  of  labor  conditions  in  France  and  Germany   ....  339 


CONTENTS  xix 

The  labor  movement  in  France 340 

Ministry  of  Millerand       342 

Digression  upon  French  trade-unionism 344 

Trade-unionism  in  the  civil  service 346 

Syndicalism  in  the  civil  service 348 

Discontent  in  the  postal  service 350 

PART  IV.  PUBLIC  OWNERSHIP  OF  TELEPHONES  IN  SOME  OTHER 
COUNTRIES  ON  THE  CONTINENT  OF  EUROPE 

XX.  THE  PROMOTION  OF  TELEPHONE  UNDERTAKINGS  BY  PRIVATE  ENTER- 

PRISE IN  BELGIUM,  HOLLAND,  AUSTRIA,  HUNGARY,  ITALY 

Belgium 355 

Holland 358 

Municipal  ownership  in  the  Netherlands 360 

Austria       363 

Hungary 365 

Italy 366 

Italian  telephone  concessions  act  of  1892 369 

Causes  of  abandonment  of  private  for  public  ownership  in  these 

five  countries 373 

XXI.  PRIVATE   OWNERSHIP   OF   TELEPHONES   IN  NORWAY,   SWEDEN, 

DENMARK,  AND  SPAIN 

Norway 374 

Rural  telephone  systems  in  Norway 378 

Sweden       382 

Competition  in  Stockholm 385 

Denmark 390 

jXpain 391 

Criticism  of  private  ownership  of  telephones  in  Europe     ....  393 

XXII.  COMPARATIVE  TELEPHONE  RATES 

Difficulties  of  making  a  comparison 396 

Resume  of  conditions  of  service 398 

Development  of  principles  of  rate-making 400 

Austrian  reform  of  1907 402 

Comparison  of  Austrian  and  American  rates 406 

Criticism  of  Austrian  rates 409 

Comparison  of  American  and  German  long-distance  rates      .    .     .  413 
Criticism  of  German  rate-policy 4*7 


XX  CONTENTS 

XXIII.  COMPARATIVE  TELEPHONE  DEVELOPMENT 

Use  of  comparative  statistics 418 

Comparative  telephone  development  in  1885  and  1895      ....  420 
Comparative  development  of  all  means  of  transmitting  intelligence 

in  1905 425 

Comparison  of  Germany  and  the  United  States 430 

Effect  of  German  policy  upon  development 432 

Rural  telephone  development  in  the  United  States 434 

Demand  for  telephone  service  in  Germany 436 

CONCLUSION 

XXIV.  THE  ECONOMY  OF  PUBLIC  OWNERSHIP 

The  failure  of  competition  in  telephones 441 

The  problem  of  monopoly 442 

The  objection  to  public  ownership 444 

The  results  of  public  ownership 445 

The  organization  of  public  business  undertakings 447 

Public  business  administration  in  France 449 

Peculiar  state  of  parliamentary  government  in  France  .    .    .    .451 

The  improvement  of  French  public  business  administration    .  453 

Public  business  administration  in  Italy  and  Germany      ....  453 

in  Switzerland 456 

Public  ownership  and  industrial  progress 457 

Public  ownership  and  recent  economic  changes 460 

BIBLIOGRAPHICAL  APPENDIX 465 

INDEX 471 


PUBLIC  OWNERSHIP  OF  TELEPHONES 
ON  THE  CONTINENT  OF  EUROPE 

INTRODUCTION 


PUBLIC   OWNERSHIP 

OF   TELEPHONES  ON  THE 

CONTINENT  OF  EUROPE 

CHAPTER  I 

THE  ORIGIN  OF  THE  EUROPEAN  STATE  TELEGRAPHS  l 

IN  the  year  1793  the  young  French  Republic  was  called  on  to 
face  a  life  and  death  struggle  for  existence.  France  was  threatened 
with  simultaneous  invasion  from  all  directions  by  the  allied  forces. 
At  Paris  the  urgency  of  prompt  measures  for  the  protection  of  the 
long  frontier  was  clearly  recognized.  The  magnitude  of  the  danger 
made  necessary  the  utmost  despatch  in  preparing  to  ward  off  the 
impending  attacks  and  the  utmost  economy  in  the  disposition  of 
the  forces  available  for  the  defense.  Yet  no  more  rapid  means  of 
transmitting  orders  was  available  than  the  medieval  courier. 
Equipped  with  his  saddle  bags  and  mounted  on  relays  of  fast 

1  My  information  in  regard  to  the  early  history  of  the  optical  and  electrical  tele- 
graphs is  derived  from  the  following  works:  — 

(a)  Lettres  des  citoyens  Eymar  et  Chappe  sur  un  nouveau  telegraphe.  Paris,  an  VI. 

(b)  I.  U.  J.  Chappe:  Histoire  de  la  telegraphic.   Le  Mans,  1840. 

(c)  Karl  Knies:  Der  Telegraph  als  Verkehrsmittel.  Tubingen,  1857. 

(d)  E.  Sax:  Der  Verkehrsmittel  in  Volks  und  Staatswirtschaft.    Vol.  I.    Vienna, 

1878. 

(e)  P.  D.  Fischer:  Post  und  Telegraphie  im  Weltverkehr.  Berlin,  1879. 

(f)  A.  de  Foville:  La  Transformation  des  moyens  de  transport  et  ses  consequences 

economiques  et  sociales.   Paris,  1880. 

(g)  G.  Schottle:  Der  Telegraph  in  administrativer  und  finanzieller  Hinsicht.  Stutt- 

gart, 1883. 

(h)  A.  Belloc:  La  Telegraphic  historique.   Paris,  1888. 

(i)  F.  J.  Huber:  Die  geschichtliche  Entwickelung  des  modernen  Verkehrs.  Leipsic, 
1893. 

(j)  J.  Jung:  Zum  funfzigjahrigen  Bestehen  der  Oberpostdirektionen.  Berlin,  1899. 
The  literature  dealing  with  the  early  history  of  the  telegraphs,  especially  in  their 
technical  aspects,  is  of  course  much  greater. 


4  PUBLIC  OWNERSHIP  OF  TELEPHONES 

horses,  he  spent  the  better  part  of  a  day  in  reaching  the  nearest 
frontier,  and  days  were  precious. 

For  a  century  or  more  the  increasing  scale  of  military  operations 
had  been  making  ever  more  and  more  urgent  the  need  for  greater 
speed  in  the  transmission  of  intelligence.  Men  of  an  inventive  turn 
of  mind  had  long  been  puzzling  their  wits  in  the  attempt  to  devise 
a  mechanical  substitute  for  horse  flesh,  which  would  clip  hours  off 
the  schedules  of  the  royal  postal  services.  Yet  until  the  arrival  of 
the  dark  days  of  the  First  Republic  all  efforts  had  resulted  only  in 
failure.  Then  the  old  proverb  proved  true.  Out  of  the  necessity 
of  that  critical  hour  sprang  the  invention  of  the  optical  telegraph. 
In  this  very  year,  1793,  an  ingenious  Frenchman  succeeded  in 
perfecting  the  contrivance  that  was  so  urgently  needed. 

To  Claude  Chappe  of  Brulon  belongs  the  credit  for  making  the 
first  practicable  telegraph.1  He  erected  signal  stations  on  lofty 
eminences  six  to  twelve  miles  apart,  and  equipped  them  with  a 
pole  and  cross  bar,  at  either  end  of  which  was  a  movable  arm.  By 
setting  these  arms  in  different  positions  he  was  able  to  designate 
the  letters  of  the  alphabet.  Messages  spelled  out  in  this  way  could 
be  read  by  an  observer  at  the  next  station,  employing  a  small 
telescope.  An  experimental  line  was  hastily  constructed  between 
Paris  and  Lille,  and  in  the  summer  of  1794  the  first  message  was 
transmitted. 

Such  was  the  beginning  of  the  optical  telegraph.  The  French 
military  authorities  perceived  at  once  the  value  of  the  invention 
and  proceeded  to  construct  optical  telegraph  lines  as  extensively 
as  their  lack  of  funds  would  permit;  but  they  declined  to  open  the 
new  service  to  the  public.  The  advantage  of  the  improved  means 
of  communication  seemed  too  great  to  be  risked  by  permitting 
the  lines  to  be  used  by  possible  enemies  of  the  Republic.  As  for 
friends,  they  should  have  no  cause  to  want  to  make  use  of  it.  So 
there  the  matter  rested.  The  optical  telegraph  had  been  called 
into  existence  for  military  purposes,  and  for  those  purposes  and 
none  other  it  remained  in  existence. 

Napoleon  Bonaparte,  whose  keen  judgment  never  failed  to 

1  The  Convention  adopted  Claude  Chappe's  proposal  for  a  system  of  optical 
telegraphs  on  July  26,  1793. 


ORIGIN  OF  EUROPEAN  STATE  TELEGRAPHS  5 

appreciate  anything  that  could  aid  in  the  accomplishment  of  his 
designs,  valued  the  optical  telegraph  service  highly,  and  extended 
the  lines  to  Amsterdam,  Mayence,  Strasbourg,  Hunningen,  and 
Venice.  Thus  he  kept  his  capital  in  close  touch  with  the  outer- 
most extremities  of  his  extraordinary  empire.  Under  his  succes- 
sors, these  lines  were  maintained  and  fresh  lines  were  constructed. 
The  last  new  line  was  built  in  1842.  At  that  time  the  French  War 
Department  operated  over  three  thousand  miles  of  optical  tele- 
graphs and  maintained  five  hundred  and  thirty-four  observation 
stations.1 

As  is  ever  the  case  with  improvements  in  the  art  of  war,  the 
originator  of  the  optical  telegraph  was  not  permitted  to  enjoy  the 
new  contrivance  alone.  Before  the  end  of  the  century  the  British 
Admiralty  established  a  line  connecting  the  offices  in  London  with 
signal  stations  at  the  strategic  points  on  the  Channel.  In  1796  the 
fear  of  invasion  caused  the  hasty  erection  of  lines  to  Dover  and  to 
Portsmouth,  and  other  lines  were  erected  later.  All  of  these  mili- 
tary lines  were  abandoned  after  the  termination  of  the  Napoleonic 
wars,  and  only  one  private  line,  serving  the  shipping  interests  be- 
tween Liverpool  and  Holyhead,  remained  in  operation.  On  the 
Continent,  however,  no  construction  of  optical  telegraphs  could 
be  undertaken  by  any  but  the  French  while  Napoleon  remained 
the  master  of  the  field.  In  fact,  not  till  1833  did  the  military  ad- 
ministration of  any  other  country  establish  optical  telegraph  lines. 
Then  the  Prussians  connected  Berlin  and  Coblenz,  in  order  to 
secure  more  rapid  communication  between  the  western  and  eastern 
portions  of  their  scattered  dominions.  There  were  sixty-one  sta- 
tions on  this  line.  It  cost  over  $50,000  to  build  and  more  than  half 
as  much  each  year  to  maintain  and  to  operate.2  The  Russians 
constructed  a  similar  line  between  St.  Petersburg  and  Kronstadt 
in  1839,  and  a  few  other  lines  of  lesser  importance  are  known  to 
have  existed  during  the  first  part  of  the  last  century.  Like  the  he- 
liograph once  used  by  the  American  army  on  the  arid  plains  of  the 
far  West,  the  optical  telegraph  was  devised  purely  for  military 
purposes  and  never  obtained  the  patronage  of  the  general  public. 

This  result  was  not  wholly  the  fault  of  the  public,  although  in 
1  Schottle,  p.  184.  2  Ibid.,  p.  145. 


6  PUBLIC  OWNERSHIP  OF  TELEPHONES 

general  it  displayed  a  surprising  indifference  to  the  optical  tele- 
graphs. In  France  a  private  company  established  a  line  between 
Paris  and  Rouen  in  order  to  serve  the  public.  Before  the  enterprise 
had  time  to  demonstrate  its  usefulness,  the  French  government 
decided  that  it  could  not  permit  so  important  a  military  and  politi- 
cal agency  to  pass  into  private  hands,  and  in  1834  forbade  further 
operation.  Three  years  later,  May  7,  1837,  a  law  was  enacted  de- 
claring the  telegraph  a  governmental  monopoly  and  making  its 
infringement  a  criminal  offense.  Thereafter  the  general  public 
took  no  further  interest  in  optical  telegraphs.  In  England,  how- 
ever, where  private  enterprise  was  under  no  restraint,  the  public 
indifference  was  equally  great. 

The  optical  telegraph  service,  great  advance  as  it  was  over 
couriers  and  saddle  bags,  suffered  nevertheless  from  certain  serious 
defects.  It  could  not  be  operated  at  all  by  night,  and  even  by  day 
its  service  was  dependent  upon  the  weather.  In  the  foggy  atmos- 
phere of  Great  Britain  the  service  could  be  maintained  on  the 
average  only  sixteen  hundred  hours  in  a  year,  or  less  than  one  hour 
in  five.  Even  under  the  sunny  skies  of  France  the  annual  aver- 
age amounted  only  to  twenty-one  hundred  hours.1  Moreover,  the 
operation  of  the  service  was  laborious.  Each  operator  had  to  lie 
all  day  with  his  eyes  glued  to  his  telescope,  and  the  slightest  negli- 
gence could  easily  give  rise  to  intolerable  delay  and  annoyance. 
Attempts  were  made  during  the  forties  to  increase  the  scope  of  the 
apparatus  by  the  use  of  lanterns  at  night,  but  these  proved  not 
very  successful  and  altogether  too  expensive.  The  operation  of 
the  service  was  already  costly  enough,  and  military  authorities 
were  reluctant  to  sink  more  of  the  public  money  for  so  small  a 
return.  Having  once  become  dependent  on  rapid  facilities,  the 
telegraph  authorities  could  not  remain  indefinitely  satisfied  with 
the  existing  service.  Clearly  the  time  had  come  for  another  radical 
improvement  in  the  mode  of  transmitting  intelligence.2 

The  new  radical  departure  was  the  substitution  of  electricity  for 
light  as  the  telegraphic  agency.  We  are  apt  to  mark  the  dawn  of 

1  Schottle,  p.  183. 

2  For  a  curious  bit  of  verse  lamenting  the  passing  of  the  optical  telegraphs,  cf. 
Loper:  Stammbuch  der  neueren  Verkehrsmittel,  pp.  318-22. 


ORIGIN  OF  EUROPEAN  STATE  TELEGRAPHS  II 

and  Aachen  was  abandoned  in  May,  and  before  the  end  of  the 
year  Hamburg,  Stettin  and  Breslau  had  also  been  connected  with 
the  capital. 

The  next  step  was  to  open  the  service  to  the  public.  This  in- 
volved a  radical  departure  from  previous  policy.  Yet  since  the 
systems  were  there  and  cost  money  to  keep  up,  the  military  author- 
ities deemed  it  sensible  to  let  the  public  share  in  their  use,  if  it 
cared  to,  and  help  defray  the  expense.  To  be  sure  the  public  might 
not  care  to  make  use  of  the  system.  Yet  there  could  be  no  harm  in 
creating  the  opportunity,  provided  the  government  reserved  pre- 
cedence for  its  own  despatches  and  exercised  a  strict  supervision 
over  the  use  of  the  service  by  private  individuals. 

Werner  Siemens,  having  again  set  up  for  himself  in  the  business 
of  manufacturing  telegraph  instruments  and  constructing  lines, 
warmly  espoused  the  cause  of  the  public.  He  pointed  out  that  the 
saving  of  time  by  the  new  telegraph  system  was  so  great  that  even 
if  the  old  optical  telegraphs  had  been  regarded  with  indifference, 
there  would  undoubtedly  spring  up  a  remunerative  public  demand 
for  the  services  of  the  improved  system.  The  Prussian  military 
authorities  at  first  demurred,  but  eventually  decided  in  favor  of 
opening  the  electric  telegraphs  to  the  public.  In  1849  the  military 
commission  for  the  study  and  improvement  of  electrical  telegraphy 
was  dissolved  and  the  service  was  placed  under  the  direction  of  the 
newly  created  Board  of  Trade.  On  August  6,  1849,  the  Prussian 
state  telegraphs  were  officially  opened  for  ordinary  commercial 
communications.1 

The  Austrians  were  not  far  behind.  To  be  sure,  as  long  as  Met- 
ternich  remained  in  power,  little  was  done.  Alone  among  the  great 
powers,  Austria  had  neglected  the  optical  telegraph  and  took  no 
notice  of  the  electrical  until  1846.  Then  experiments  were  begun 
along  the  government  railway  from  Vienna  to  Briinn.  In  the  same 
year  Metternich  issued  a  decree  declaring  the  telegraph  to  be  a 
monopoly  of  the  state.  Here  he  stopped.  But  after  the  events  of 
1848  had  put  an  end  to  Metternich's  regime,  the  work  of  building 
telegraphs  was  taken  up  with  great  energy.  The  policy  of  the  new 
government  was  the  counterpart  of  the  Prussian  policy.  In  June, 

1  Jung,  II,  p.  25. 


12  PUBLIC  OWNERSHIP  OF  TELEPHONES 

1849,  tne  system  was  established  and  in  October  tentatively 
opened  to  the  public.  The  authorities  were  satisfied  with  the  ex- 
periment, and  in  the  following  year  the  opening  was  confirmed.1 

In  France  likewise,  the  events  of  1848  gave  a  new  impetus  to 
telegraph  construction.  The  Second  Republic  took  the  matter  in 
hand,  and  the  system  was  officially  opened  to  the  public  by  the  law 
of  November  29,  1850,  with  reservation  of  precedence  for  the  pub- 
lic despatches.  The  governmental  service,  however,  still  remained 
the  prime  purpose  of  the  telegraph,  which  continued  until  1878 
under  the  administration  of  the  Minister  of  the  Interior,  the  head 
of  the  national  police.  Moreover,  the  government  still  clung  to  its 
optical  telegraphs,  a  fact  which  caused  electrical  construction  to 
drag.  Up  to  December  2,  1851,  comparatively  little  had  been 
accomplished.  After  the  Coup  d'Etat  Louis  Napoleon,  who  well 
understood  the  value  of  rapid  and  reliable  communication  with  his 
civil  and  military  prefects,  pushed  the  work  of  fresh  construction, 
but  it  was  not  until  1855  that  the  once  splendid  system  of  optical 
telegraphs  was  wholly  abandoned.2 

In  Belgium  a  concession  to  introduce  the  electrical  telegraph 
was  granted  to  Wheatstone  and  Cooke  in  1846.  They  built  their 
first  line  to  connect  Brussels  and  Antwerp.  But  they  had  mis- 
judged the  Belgian  public.  They  found  no  business  except  stock 
exchange  traffic  and  could  scarcely  cover  the  expenses  of  opera- 
tion. The  company  accordingly  declined  to  build  additional  lines 
when  requested  to  do  so  by  the  government,  and  in  1850  gladly 
sold  back  its  original  undertaking  to  the  public  authorities,  who  by 
that  time  had  come  to  the  conclusion  that  they  must  build  their 
telegraph  system  themselves  if  they  were  to  have  one  at  all  com- 
mensurate with  the  administrative  needs.  The  government  con- 
structed lines  on  the  state  railroads  and  opened  them  to  the  public. 
In  1851  other  lines  were  also  opened  to  commercial  communica- 
tion, and  the  system  soon  proved  profitable.3 

In  the  Netherlands  a  royal  ordinance  of  December  8,  1847, 
prescribed  the  conditions  under  which  private  persons  might  estab- 
lish telegraph  undertakings.4  The  government  reserved  the  right 

1  SchSttle,  p.  173.  2  Knies,  p.  118. 

3  Knies,  p.  117.  4  Ibid,,  p.  117.   Schottle,  p.  176. 


ORIGIN  OF  EUROPEAN  STATE  TELEGRAPHS  13 

of  precedence  for  state  despatches,  of  operation  by  the  public 
authorities  in  time  of  war,  of  approval  of  rates,  and  of  compensa- 
tion for  loss  occasioned  to  the  postal  revenues  by  the  competition 
of  the  telegraphs.  The  conditions  were  certainly  not  very  alluring. 
The  Holland  Railway  Company,  however,  which  since  1845  had 
operated  a  line  exclusively  for  signal  purposes,  at  once  opened 
its  service  to  the  public.  In  1851  a  line  was  opened  between 
Amsterdam  and  Nieuwediep  to  serve  the  fishing  interests.  Here 
private  enterprise  stopped.  Hence,  March  7,  1852,  a  law  was  en- 
acted providing  that  the  government  itself  should  build  the  im- 
portant lines  at  once,  leaving  to  others  only  the  secondary  lines. 
As  a  matter  of  fact,  what  eventually  happened  was  that  the  local 
municipal  authorities  had  to  undertake  the  task  of  completing  the 
Dutch  telegraph  system  after  the  central  government  had  con- 
structed the  main  trunk  lines.  In  1857  the  rule  was  established 
that  thereafter  new  telegraph  offices  should  be  erected  by  the  cities 
and  villages  themselves  but  operated  by  the  royal  government. 
After  the  first  year  of  operation,  the  local  authorities  were  required 
to  decide  whether  or  not  they  wished  to  have  the  operations  con- 
tinued. In  the  former  case  they  were  required  to  guarantee  a 
minimum  amount  of  receipts,  fixed  according  to  the  character  of 
the  service  supplied.1  In  either  event,  the  state  was  secured 
against  loss. 

The  most  successful  instance  of  the  combination  of  public  and 
local  enterprise  occurred  in  Switzerland.  The  peculiar  topography 
of  that  remarkable  country  had  delayed  the  introduction  of  rail- 
roads. Moreover,  there  were  lacking  those  military  and  political 
motives  which  were  the  strongest  factors  in  bringing  about  the 
introduction  of  the  telegraph  into  the  more  powerful  countries  of 
continental  Europe.  Hence  the  Swiss  authorities  did  not  pounce 
on  this  new  agent  of  centralization  so  promptly  as  some  of  their 
neighbors.  On  the  other  hand,  private  enterprise  showed  little 
disposition  to  exploit  the  telegraphs  as  a  commercial  venture. 

An  enlightened  population,  however,  could  not  long  dispense 
with  such  an  important  improvement  in  the  means  of  transmitting 
intelligence.  A  federal  law  of  December  23,  1851,  declared  the 

1  Schsttle,  p.  104. 


14  PUBLIC  OWNERSHIP  OF  TELEPHONES 

telegraph  to  be  a  public  service  and  provided  for  the  immediate 
beginning  of  construction.  A  loan  of  $80,000  was  raised  from  the 
public-spirited  population  without  payment  of  interest.  This  loan 
was  repaid  within  five  years  out  of  the  proceeds  of  operation. 
Meanwhile  the  lines,  as  fast  as  constructed,  were  put  at  the  free 
disposal  of  the  public  until  the  entire  system  was  ready  to  be 
opened.  This  was  done  on  December  5,  1852.  Provision  for  the 
further  extension  of  the  system  was  made  by  a  federal  law  of 
December  20,  1854.  It  was  ordained  that  the  condition  of  the 
establishment  of  a  new  office  should  be  a  moderate  contribution 
by  the  local  authorities  to  the  expenses  of  construction  and 
operation.  They  were  required  to  put  a  right  of  way  at  the 
free  disposal  of  the  federal  telegraph  administration,  to  provide 
accommodations  for  the  office,  and  to  guarantee  from  operation 
each  year  during  the  first  ten  years  after  the  opening,  a  sum 
equal  to  seventy-five  cents  for  each  one  hundred  members  of 
the  local  community,  but  to  be  not  less  than  forty  dollars.  These 
contributions  made  it  possible  for  the  government  to  establish 
low  rates.  The  arrangement  was  well  adapted  to  the  nature  of  the 
country  and  the  temperament  of  the  people.  The  result  was  that 
in  1856,  only  four  years  after  the  beginning  of  work,  Switzerland 
possessed  relatively  to  her  size  and  population  the  most  extensive 
telegraph  service  on  the  Continent  of  Europe.1 

The  spread  of  the  telegraph  throughout  Europe  was  rapid  once 
the  greater  countries  had  led  the  way.  R.  van  der  Borght,  in  his 
treatise  Das  Verkehrswesen,  gives  the  following  dates  of  the  opening 
of  the  various  state  telegraph  systems  to  the  public:  1849,  Prussia 
and  Austria;  1850,  Bavaria  and  Saxony;  1851,  France,  Belgium, 
Wurtemburg,  Baden;  1852,  Sardinia,  Parma,  Modena,  Tuscany, 
Hanover, Holland,  and  Switzerland;  1853,  Sweden;  1854,  Denmark 
and  several  of  the  smaller  German  states;  1855,  Norway,  Spain, 
and  Portugal;  1856,  Russia  and  several  of  the  Balkan  States;  1857, 
the  Two  Sicilies;  and  1859,  Greece.  In  no  country  were  any  impor- 
tant lines  undertaken  by  private  enterprise.  The  unanimity  of  the 
contemporaneous  sentiment  which  sanctioned  the  public  owner- 
ship of  the  telegraphs  was  reflected  in  the  deliberations  of  the 

1  Knies,  pp.  118-22. 


ORIGIN  OF  EUROPEAN  STATE  TELEGRAPHS  15 

German  National  Congress  at  Frankfort  in  1848-49.  That  body 
cannot  be  accused  of  any  inclination  to  encourage  what  might  be 
considered  illiberal  practices.  Section  44  of  its  ill  fated  constitution 
was  to  have  provided  for  the  organization  of  an  imperial  telegraph 
system,  to  be  administered  as  a  governmental  undertaking  through- 
out all  Germany. 

The  further  history  of  the  European  state  telegraphs  need  not 
detain  us.1  We  are  interested,  not  in  the  conduct  of  the  telegraph 
business  itself,  but  in  the  situation  which  existed  at  the  time  of  the 
invention  of  the  telephone.  Enough  has  been  written  to  show 
what  were  the  main  motives  that  brought  about  the  introduction 
of  the  electrical  telegraph  upon  the  Continent  of  Europe.  The 
economic  motive  which  leads  men  to  seek  a  profitable  investment 
for  their  capital  and  energy  was  not  one  of  them.  Private  enter- 
prise never  showed  any  disposition  to  engage  in  the  telegraph 
business  on  a  scale  that  would  have  made  the  service  of  much  use 
to  the  general  public.  If  the  public  authorities  had  done  nothing, 
doubtless  sooner  or  later  the  scattered  railway  signal  services 
would  have  developed  into  services  of  real  public  benefit,  or  else 
commercial  undertakings  would  have  entered  the  field  directly. 
In  the  beginning,  however,  the  general  public  was  indifferent  to 
the  electrical  telegraph.  The  needs  in  response  to  which  the 
electrical  telegraphs  were  first  called  into  existence,  on  any  con- 
siderable scale,  were  purely  military  and  political,  and  they  were 
anticipated  and  satisfied  by  public  authorities  themselves. 

1  The  significance  of  the  experience  of  the  continental  countries  with  government 
ownership  of  telegraphs  was  the  subject  of  a  lively  discussion  in  England  just  before 
the  nationalization  of  the  telegraphs  of  the  United  Kingdom  in  1870.  Cf.  (a)  F.  I. 
Scudamore:  A  Report  to  the  Postmaster-General  upon  Certain  Proposals  which  have 
been  made  for  transferring  to  the  Post-Office  the  Control  and  Management  of  the 
Electric  Telegraphs  throughout  the  United  Kingdom,  July,  1866;  also,  (b)  A  Supple- 
mentary Report  (on  the  same),  February,  1868,  in  the  Parl.  Papers  for  the  corre- 
sponding years.  Cf.  also  (c),  the  Special  Report  from  the  Select  Committee  on 
the  Electric  Telegraphs  Bill,  1868,  and  (d)  the  Report  on  the  Telegraph  Bill,  1869. 


PART  I 

PUBLIC  OWNERSHIP  OF  TELEPHONES  IN 
GERMANY 


CHAPTER  II 

THE  PROMOTION  OF  TELEPHONE  UNDERTAKINGS  BY  THE  TELEGRAPH 

AUTHORITIES 

THE  leading  feature  of  the  economic  history  of  Germany  during 
the  nineteenth  century  was  the  growth  of  the  spirit  of  business 
enterprise.  The  economic  evolution  of  the  last  one  hundred  years, 
from  the  point  of  view  of  the  manual  laborer,  has  been  character- 
ized by  the  development  of  the  class  of  wage  earners  at  the  expense 
of  the  independent  workman.  But  this  implies  a  corresponding 
development  of  the  class  of  wage  payers,  who  become  less  and  less 
hand  workers  and  more  and  more  brain  workers.  The  wage  payer 
undertakes  not  only  the  task  of  organizing  and  directing  the  efforts 
of  his  workmen,  but  also  that  of  anticipating  the  future  wants  of 
his  market  and  regulating  his  output  in  accordance  with  the  pros- 
pect for  its  sale.  He  may  even  delegate  the  labor  of  superintend- 
ence to  a  foreman,  but  the  task  of  adjusting  the  supply  to  the 
demand,  the  function  par  excellence  of  the  business  man,  he  always 
retains  in  his  own  hands.  In  the  case  of  a  stock  company,  there  is 
an  application  of  the  representative  principle  to  the  conduct  of 
business  ventures,  but  the  nature  of  the  service  for  which  the 
stockholders  receive  a  return  other  than  the  market  rate  of  interest 
on  their  investment  is  the  same.  It  is  this  courage  du  capital,  as 
the  French  phrase  it,  or  the  spirit  of  business  enterprise,  as  we 
employ  the  term,  that  has  taken  over  from  the  medieval  gilds  the 
control  of  the  market  and  with  it  the  task  of  ascertaining  the 
wants  of  the  community  and  of  delivering  the  goods  that  are 
desired. 

At  the  dawn  of  the  century  there  was  very  little  room  in  Ger- 
many for  such  a  display  of  private  initiative.  Both  the  three-field 
system  of  agriculture  and  the  gild  system  of  industry  were  con- 
ducted on  a  collective  basis.  No  individual  was  free  to  act  except 
in  accord  with  his  fellows.  The  effect  of  the  economic  evolution  of 
centuries  had  been  to  strengthen  the  bonds  of  mutual  dependence 


20  PUBLIC  OWNERSHIP  OF  TELEPHONES 

between  persons  engaged  in  the  same  occupation.  In  the  United 
States  a  century  ago  the  situation  was  the  exact  reverse.  In  the 
younger  country  the  most  important  qualifications  for  gaining  a 
livelihood  were  personal  initiative  and  self-reliance.  These  are 
precisely  the  qualities  that  are  best  fitted  to  nourish  the  courage 
du  capital.  Hence  the  American  farmer  promptly  developed  into 
an  enterprising  business  man  as  soon  as  the  opportunity  presented 
itself.  But  it  was  no  easy  matter  for  the  German  to  display  similar 
qualities,  when  they  happened  to  be  born  in  him,  unless  he 
wrenched  himself  free  from  the  ossified  environment  of  his  native 
land  and  began  life  afresh  in  the  less  rigid  atmosphere  of  the  newer 
country  on  the  other  side  of  the  Atlantic.  In  short,  private  enter- 
prise was  torpid  in  the  Germany  of  a  century  ago  because  medieval 
conditions  still  dominated  economic  life,  and  medieval  conditions 
left  little  room  for  private  enterprise. 

This  peculiar  psychological  condition  of  the  German  people 
helps  to  explain  their  failure  to  introduce  the  telegraph  by  private 
initiative.  Thus  the  explanation  of  the  construction  of  the  first 
telegraph  systems  by  the  public  authorities  lies  not  only  in  the 
fact  that  they  felt  a  need  for  the  service  and  private  individuals 
did  not,  but  also  in  the  scarcity  of  business  men  animated  by  a 
desire  to  undertake  such  ventures.  The  relatively  small  body  of 
merchants  and  bankers  in  the  German  cities  were  content  to  con- 
duct their  business  in  the  old  ways  and  refused  to  bother  their 
brains  about  such  an  innovation  as  the  telegraph.  Consequently 
the  public  authorities,  on  account  of  the  military  and  political 
conditions  which  have  already  been  described,  were  forced  to 
undertake  the  task  themselves. 

It  must  not  be  supposed,  however,  that  the  early  public  tele- 
graph authorities  were  animated  by  the  spirit  of  business  enter- 
prise. The  spirit  that  prompted  the  public  authorities  to  establish 
those  early  telegraph  systems  was  very  far  removed  from  what  we 
have  called  the  spirit  of  business  enterprise,  the  spirit  which 
prompts  a  community,  or  individual  members  thereof,  to  look 
ahead  into  the  future  with  a  view  to  anticipating  a  hitherto  unsat- 
isfied want  in  the  community  and  to  setting  about  at  once  to 
supply  that  want  in  advance.  There  was  no  such  complicated 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS         21 

psychological  process  at  the  bottom  of  the  first  attempt  to  establish 
the  telegraphs.  The  public  authorities  felt  a  need  of  their  own,  and 
finding  no  one  else  to  supply  it  for  them,  set  to  work  to  supply  it 
for  themselves. 

The  governmental  officials  who  undertook  the  management  of 
the  telegraph  systems  felt  themselves  under  no  obligation  to  serve 
the  public,  nor  was  such  service  expected  of  them  by  public  opin- 
ion. Public  ownership  of  telegraphs  in  the  beginning  was  not, 
strictly  speaking,  a  manifestation  of  the  spirit  of  business  enter- 
prise. It  was  simply  a  branch  of  the  public  administration,  forced 
upon  the  government  by  the  lack  of  private  enterprise.  Mean- 
while, however,  the  spirit  of  modern  business  enterprise  was  mak- 
ing great  progress  in  German  industrial  life.  Yet,  as  a  nation  is 
but  a  collection  of  individuals,  it  naturally  first  took  the  form  of 
private  business  enterprise.  The  question  next  arises,  would  the 
community  as  a  unit,  acting  through  the  public  authorities,  show 
itself  capable  of  a  similar  development  of  public  business  enter- 
prise ? 

The  opportunity  came  with  the  invention  of  the  telephone. 
Ever  since  the  telegraphs  had  been  thrown  open  to  the  public, 
more  or  less  effort  had  been  made,  according  to  the  character  of 
the  telegraph  administration  and  the  military  and  political  situa- 
tion of  the  country,  to  consider  private  as  well  as  public  wants  in 
administering  the  service.  Yet,  on  the  whole,  it  is  not  unfair  to 
say  that  political  rather  than  economic  needs  had  received  primary 
consideration.  Already  opportunities  for  a  convincing  display  of 
business  enterprise  had  been  declined  by  several  telegraph  admin- 
istrations. For  example,  local  urban  telegraphs  were  never  under- 
taken by  any  government,  although  a  need  for  them  appeared  in 
several  cities.  In  Vienna  a  concession  for  an  urban  telegraph  sys- 
tem was  granted  to  a  private  company  in  the  early  sixties,  and  the 
same  thing  was  done  in  Paris  a  decade  later,  for  the  purpose  of 
distributing  stock  exchange  quotations.  In  Berlin,  however,  the 
telegraph  authorities  met  a  somewhat  similar  need  by  the  estab- 
lishment in  1876  of  a  system  of  pneumatic  tubes.  The  grand 
opportunity  came  with  the  invention  of  the  telephone. 
The  telephone  is  a  device  for  rendering  the  same  kind  of  service 


22  PUBLIC  OWNERSHIP  OF  TELEPHONES 

as  that  rendered  by  the  telegraph,  —  it  saves  time  and  labor  in 
the  transmission  of  messages.  At  first,  indeed,  the  fact  may  not 
have  been  obvious  that  the  two  instruments  were  capable  of  sup- 
plying precisely  identical  services.  The  technical  deficiencies  of 
the  early  telephones  may  often  have  led  to  the  belief  that  the  two 
instruments  would  never  come  into  direct  competition  with  one 
another.  But  even  at  the  time  of  the  invention  of  the  telephone, 
the  kinship  between  it  and  the  telegraph  was  unmistakable. 

The  public  telegraph  authorities  were  under  obligations  to  dis- 
play their  capacity  for  the  management  of  the  great  business 
undertaking  which  had  sprung  up  under  their  care  by  making  a 
prompt  application  of  the  new  invention  to  the  improvement  of 
telegraphic  communication.  Failure  on  their  part  to  ascertain  the 
need  for  the  telephone  and  to  take  steps  for  its  immediate  intro- 
duction where  it  should  be  demanded,  would  indicate  that  they 
were  unworthy  of  further  confidence  in  the  management  of  im- 
portant business  undertakings.  The  reasons  which  actually  led 
to  the  public  ownership  of  telegraphs  were  already  deemed  inade- 
quate by  the  economists  of  the  next  generation  for  the  justification 
of  the  continuance  of  that  policy.  They  pointed  out  the  advan- 
tages of  centralized  management  and  of  organization  on  a  large 
scale,  and  argued  that  the  public  authorities  must  realize  those 
advantages;  otherwise  the  wisdom  of  the  retention  of  the  monopoly 
in  public  hands  was  open  to  question.1 

The  first  telephone  was  invented  and  so  named  by  a  German, 
Philipp  Reis  by  name.2  He  was  a  teacher  in  a  boarding  school  at 

1  Cf.  E.  Sax:  vol.  i,  p.  228.    The  Austrian  economist  argued  that  the  growth  of 
the  spirit  of  business  enterprise  on  the  Continent  would  now  make  feasible  the  farm- 
ing out  of  the  telegraph  systems,  if  the  public  authorities  should  prove  incapable 
of  managing  them  in  a  business-like  manner.   He  was  confident,  however,  that  they 
would  not  show  themselves  incapable.  Adolf  Wagner,  on  the  other  hand  (Finanzwis- 
senschaft,  Part  i,  3rd  edit.,  1883,  pp.  652-56),  considered  that  the  telegraph  was  too 
important  an  administrative  instrument  to  be  surrendered  to  private  control  under 
any  circumstances.    Sax  had  no  knowledge  of  the  telephone  when  he  wrote,  and 
Wagner  gives  it  no  special  consideration. 

2  Cf.  Schenk:  Philipp  Reis,  der  Erfinder  des  Tekphons,  1878;    Geschichte  und 
EntwickelungdeselektrischenFernspreckwesens,  2nd  edit.,  1880.  A  pamphlet  appeared 
at  London  in  1891  by  one  W.  Coldbrook,  claiming  to  prove  that  the  invention  of  the 
telephone  was  predicted  in  the  Book  of  Revelation. 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS         23 

Friedrichsdorf  bei  Homburg  vor  der  Hohe  in  Hessen-Nassau,  and 
demonstrated  in  the  year  1861  that  sound  could  be  conveyed  by 
electricity  and  reproduced  at  a  distance.  His  instrument,  however, 
was  based  on  a  wrong  principle,  that  of  the  make-and-break  cir- 
cuit, and  was  impracticable  for  commercial  purposes.  Reis  re- 
ceived no  encouragement  from  his  contemporaries,  either  official 
or  scientific,  and  died  in  1869  a  disappointed  man.  Bell's  tele- 
phone, based  on  the  correct  principle  of  a  continuous  current  as 
the  actuating  medium,  seems  first  to  have  become  known  in  Ger- 
many through  the  report  of  the  Board  of  Judges  of  the  electrical 
exhibit  at  the  Centennial  Exhibition  at  Philadelphia  in  1876.  Sir 
William  Thompson,  later  Lord  Kelvin,  was  especially  impressed 
with  Bell's  invention  and  introduced  the  idea  to  European  scien- 
tific circles.1 

At  that  time,  Heinrich  von  Stephan  was  Postmaster-General  of 
Germany  and  manager  of  the  Imperial  Telegraphs.2  He  was 
founder  of  the  Universal  Postal  Union  and  a  man  of  exceptional 
administrative  capacity.  He  at  once  seized  upon  the  new  idea  and 
began  experimenting  in  the  summer  of  1877.  His  results  are  de- 
scribed in  an  enthusiastic  letter  penned  to  the  Imperial  Chancellor, 
Prince  Bismarck,  November  9,  1877. 3  He  relates  how  he  ran  a 
wire  from  his  office  in  Berlin  to  the  suburb  of  Friedrichsberg  and 
on  October  4, 1877,  succeeded  in  establishing  telephonic  communi- 
cation. He  was  delighted  with  the  success  of  the  experiment  and 
predicted  a  great  future  for  the  telephone.  At  the  same  time  he 
announced  his  intention  of  making  at  once  a  practical  application 
of  the  new  invention  in  the  imperial  telegraph  service.  He  pro- 
posed to  utilize  the  telephone  instead  of  the  telegraph  in  country 

1  R.  van  der  Borght:  Das  Verkehrswesen,  p.  373. 

2  The  German  imperial  telegraph  system  was  created  by  the  constitution  of  1871. 
In  Prussia  the  telegraphs  had  remained  a  part  of  the  postal  service  until  1867.  Then 
on  account  of  the  stress  of  work  caused  by  the  war  with  Austria  they  were  erected 
into  a  separate  department  under  the  management  of  a  military  officer.   In  the  fol- 
lowing year  the  telegraph  service  was  made  over  to  the  North  German  Confedera- 
tion, and  in  1871,  together  with  the  telegraphs  of  the  other  German  states  except 
Bavaria  and  Wurtemburg,  to  the  German  Empire.    Under  military  management 
the  service  showed  recurrent  deficits,  and  in  1875  was  joined  once  more  to  the  post 
office.  By  this  change  it  fell  into  good  hands. 

1  Reprinted  in  Heilbrun:  Telegraphic  und  Telephonic,  pp.  475-76. 


24  PUBLIC  OWNEBSHIP  OF  TELEPHONES 

post  offices  to  which  the  telegraph  service  had  not  yet  been  extended. 
The  telephone  did  not  require  a  trained  operator  and  hence  could 
be  operated  more  cheaply  than  the  telegraph.  At  the  same  time 
it  was  capable  of  rendering  an  equivalent  service  on  lines  not 
more  than  fifteen  or  twenty  miles  in  length.  It  would,  therefore, 
prove  very  serviceable  in  those  rural  communities  which  were  too 
poor  to  afford  a  regular  telegraph  service.  By  the  end  of  the  same 
year  Stephan  had  already  brought  fifteen  rural  villages  into  the 
general  telegraph  system  by  means  of  telephone  connections.  By 
the  end  of  the  following  year  the  number  had  risen  to  287,  and 
during  1879  over  500  more  villages  were  brought  into  connection 
with  the  outside  world  by  the  same  means.1 

This  introduction  of  the  telephone  into  the  German  telegraph 
system  was  its  first  application  anywhere  in  the  world  as  a  means 
of  regular  public  communication.  In  America  Bell's  remarkable 
invention  had  not  yet  reached  that  stage  in  its  development. 
There  were  a  number  of  private  lines  connecting  different  parts  of 
the  same  business  establishment,  or  different  establishments  hav- 
ing common  interests,  but  the  first  public  exchange  system  was 
not  established  until  several  months  after  the  opening  of  the  first 
public  lines  in  Germany.  To  Stephan  belongs  the  credit  for  being 
the  first  to  discern  the  public  need  for  the  telephone  and  to  under- 
take to  satisfy  it.  It  was  at  once  a  personal  triumph  for  the  Ger- 
man administrator  and  a  landmark  in  the  history  of  public  owner- 
ship in  Germany. 

It  will  be  observed  that  the  first  public  telephone  systems  in 
Germany  and  in  the  United  States  were  established  with  a  view 
to  satisfying  entirely  different  needs.  In  the  latter  country  the 
need  was  for  an  exchange  service  between  members  of  the  same 
community.  In  the  former  it  was  for  a  toll  service  between  differ- 
ent communities.  In  America  the  telephone  was  a  much  wanted 
substitute  for  the  slower  district  messenger  service.  In  Germany 
it  was  a  substitute  for  the  more  costly  rural  telegraph  service.  A 
long  delay  was  necessary  before  the  peculiar  American  conditions 
permitted  of  a  similar  application  of  the  telephone  in  that  country. 

1  J.  Jung:  Entwickelung  des  deutschen  Post-  und  Telegraphenwesens  in  den  letzten 

25  Jahren,  p.  84. 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS         25 

In  Germany  the  introduction  of  the  American  local  exchange 
service  was  possible  after  a  comparatively  short  interval. 

Within  a  couple  of  years  American  speculators  had  made  their 
way  to  Europe  with  the  purpose  of  exploiting  the  telephone  in  the 
more  important  commercial  centres.1  In  1879  two  companies 
were  organized  in  London  to  establish  a  local  exchange  service, 
and  concessions  for  the  same  purpose  were  being  sought  on  the 
Continent.  Stephan  at  once  took  an  interest  in  this  new  applica- 
tion of  the  telephone  and  saw  that  it  met  a  real  need.  Accordingly 
in  the  year  1880  he  decided  to  introduce  the  telephonic  system  of 
communication  into  the  German  urban  telegraph  service,  as  he 
had  already  introduced  it  into  the  rural  service.  This  decision  could 
be  executed  only  with  the  cooperation  of  the  public,  and  the 
public  had  already  been  invited  within  half  a  decade  to  support 
one  innovation  in  the  local  system  of  communication.  But  Ste- 
phan proved  equal  to  the  occasion.  Sending  out  canvassers  into 
the  financial  and  wholesale  districts  of  Berlin,  he  soon  obtained 
the  pledges  of  one  hundred  subscribers,  and  on  April  i,  1881,  the 
local  facilities  for  the  rapid  transmission  of  intelligence  were  in- 
creased by  the  addition  of  the  telephone  exchange  to  the  existing 
system  of  pneumatic  tubes.  In  the  same  year,  sometimes  on  the 
initiative  of  the  telegraph  administration,  in  at  least  one  case  — 
that  of  Mlilhausen  —  in  response  to  that  of  local  business  men, 
exchanges  were  opened  also  in  Hamburg,  Cologne,  Frankfort, 
Breslau,  Mannheim,  and  Miilhausen  in  Elsass.  The  construction 
of  further  exchanges  was  already  approved  and  the  succeeding 
years  witnessed  a  rapid  extension  of  the  service.2 

The  German  telegraph  administration  attempted  to  meet  an- 
other sort  of  need  for  speedier  communication  by  the  establishment 
of  the  so-called  territorial  telephone  systems  (Bezirks-Fernsprech- 
einrichtungen) .  The  nature  of  this  service  was  the  combination 
with  a  local  exchange  service  of  an  inter-urban  toll  service  open 
to  all  subscribers  at  a  flat  rate  per  annum.  The  close  proximity  of 
German  cities  in  certain  industrial  districts  and  the  magnitude  of 
their  common  interests  created  a  strong  demand  for  closer  con- 
nections between  the  individual  cities  of  the  district.  The  same 

1  Schottle,  p.  137.  *  Jung,  I,  p.  85. 


26  PUBLIC  OWNERSHIP  OF  TELEPHONES 

circumstances  also  made  such  inter-urban  systems  more  feasible 
than  they  would  have  been  in  the  United  States  in  the  existing 
crude  condition  of  telephone  technique.  The  first  territorial  tele- 
phone system  was  established  in  1884  in  the  Upper  Silesian  coal 
district.  During  the  next  half  dozen  of  years  similar  systems  were 
established  in  a  number  of  other  industrial  districts,  some  of 
them  embracing  an  area  of  as  many  as  six  or  seven  hundred  square 
miles.1 

In  the  same  year  (1884)  in  which  a  territorial  telephone  system 
was  first  established,  and  in  response  to  a  somewhat  similar  need, 
ordinary  long-distance  service  was  likewise  established.  This  was 
intended  to  serve  more  diversified  interests  and  over  longer  dis- 
tances than  the  other,  and  was  made  possible  only  by  the  progress 
of  technique  which  had  occurred  since  the  early  days  of  the  tele- 
phone. At  first  audible  conversation  was  not  possible  beyond  a 
score  or  two  of  miles,  but  as  a  result  of  the  indefatigable  efforts  of 
the  telephone  engineers,  both  in  Europe  and  in  America,  the  range 
of  effective  communication  was  rapidly  extended.2 

Finally,  the  German  telegraph  authorities  did  not  neglect  to 
make  provision  for  the  establishment  of  private  telephone  lines. 
They  had  assumed  from  the  beginning  that  the  telephone  was 
simply  an  improvement  in  telegraphy  which  fell  within  the  prov- 
ince of  the  public  telegraph  system  authorized  by  section  48  of 
the  constitution  of  the  empire.  Nevertheless,  they  saw  the  wis- 
dom of  encouraging  private  persons  to  establish  their  own  connec- 
tion with  the  public  telegraph  system  in  order  to  facilitate  the  ser- 
vice of  purely  private  needs.  An  administrative  order  of  Novem- 
ber 22,  1882,  regulated  the  conditions  under  which  such  private 
connections  with  the  public  telegraphs  would  be  permitted.  At 
no  time,  moreover,  was  there  any  restriction  upon  the  construc- 
tion of  private  lines  wholly  within  the  bounds  of  private  property 
for  the  sole  use  of  the  owners.  At  the  end  of  the  year  1891  there 
were  2,301  private  lines  connecting  with  the  public  service  and 
2,871  purely  private  telephone  systems.3 

In  putting  the  telephone  service  at  the  disposal  of  the  public  in 
anticipation  of  the  demand,  the  German  telegraph  authorities 
1  Jung,  I,  p.  87.  *  Ibid.,  p.  89.  '  Ibid.,  p.  90. 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS          27 

made  a  highly  commendable  record.  It  was  a  record  of  which  they 
have  all  the  more  reason  to  be  proud,  since  at  that  time  private 
enterprise  in  Germany  had  attained  a  growth  which,  reenf orced  by 
the  energy  of  American  speculators,  would  readily  have  relieved 
the  public  authorities  of  their  self-imposed  task.  Their  refusal  to 
take  advantage  of  this  circumstance  denotes  a  recognition  of  the 
obligations  that  go  with  the  public  administration  of  such  a  service 
as  the  telegraph.  In  other  words,  it  reveals  the  possession  by  the 
German  telegraph  authorities  of  the  true  spirit  of  business  enter- 
prise. A  final  judgment  upon  their  conduct  of  affairs  must  be 
suspended  until  after  an  examination  of  their  subsequent  policy 
with  regard  to  the  maintenance  of  an  adequate  supply  of  facilities 
and  of  an  efficient  quality  of  service.  Before  proceeding  to  this 
part  of  the  inquiry,  the  history  of  the  introduction  of  the  telephone 
into  the  two  independent  South  German  telegraph  systems  de- 
serves some  consideration. 

In  Bavaria  and  Wurtemberg  German  methods  were  applied  on 
a  smaller  scale,  which  permits  of  a  closer  examination  of  the  de- 
tails of  German  administrative  practice.  The  first  appearance  of 
the  telephone  in  Stuttgart,  the  capital  of  Wurtemberg,  is  related 
in  the  report  of  the  Stuttgart  Chamber  of  Commerce  and  Industry 
for  the  year  iSSo.1  Early  in  the  year  1880  a  representative  of  the 
American  Bell  Telephone  Company,  Armin  Tenner  by  name,  came 
to  the  city  and  began  to  canvass  the  field  for  subscribers  to  an 
exchange  system.  At  the  same  time  he  sought  a  concession  from 
the  government  for  thirty  years.  At  the  end  of  that  period  the 
plant  and  business  should  revert  to  the  state  free  of  charge.  With- 
out waiting  for  the  concession  to  be  granted,  but  relying  on  the 
support  of  the  municipal  authorities,Tenner  began  to  put  up  wires 
over  the  public  ways  and  prepared  to  open  his  exchange.  At  this 
point  the  Wurtemberg  state  police  stepped  in  and  put  a  stop  to 
further  proceedings. 

The  telegraph  administration  had  decided  not  to  permit  the 
telephone  business  to  fall  into  alien  hands.  At  this  time  it  was  a 
disputed  legal  question  whether  or  not  the  telegraph  was  a  gov- 

1  HGK  Stuttgart,  1880.  For  an  account  of  the  relations  between  the  chambers 
of  commerce  and  the  public  authorities,  see  the  next  chapter. 


28  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ernmental  monopoly.1  No  legislation  had  ever  been  enacted  in 
Wurtemberg  in  regard  to  the  telegraph.  Section  48  of  the  imperial 
constitution  of  1871  simply  provided  that  the  telegraphs  should 
be  administered  as  a  centralized  undertaking  by  the  imperial  tele- 
graph authorities.  A  later  section  provided  for  the  retention  by 
Bavaria  and  Wurtemberg  of  the  management  of  their  telegraphs, 
so  far  as  intra-state  business  was  concerned,  but  no  monopoly 
was  specifically  granted  to  any  public  authority.  Hence,  when 
some  of  the  German  municipal  authorities  were  approached  by 
representatives  of  the  Bell  Telephone  interests  with  a  view  to 
obtaining  concessions  for  local  exchanges,  there  was  a  disposition 
in  some  quarters  to  grant  the  desired  concessions.  Among  others 
were  the  local  authorities  at  Stuttgart.  However,  in  October, 
1880,  Postmaster- General  Stephan  issued  an  order  stating  that 
"the  erection  of  telephone  connections  as  Verkehrsanstalten  (i.  e. 
means  for  the  transmission  of  intelligence  by  the  general  public) 
by  others  than  the  imperial  postal  authorities,  or  those  to  whom 
the  latter  should  assign  their  rights,  was  forbidden."  This  flat 
assumption  of  power  not  only  put  a  stop  to  the  construction  of 
public  telephone  systems  by  private  enterprise  within  the  imperial 
postal  area,  but  also  laid  down  a  principle  of  constitutional  inter- 
pretation which  the  Wurtemberg  and  Bavarian  authorities  were 
bound  to  follow. 

In  a  sitting  of  the  Wurtemberg  Landtag  which  was  held  on  De- 
cember 14,  1880,  one  of  the  ministers  of  the  Crown  declared:  il  So 
far  as  concerns  the  capital  needed  to  start  a  public  telephone  sys- 
tem in  Stuttgart,  we  shall  have  no  difficulty  provided  we  can  secure 
thirty-six  subscribers.  If  we  are  unable  to  obtain  so  many,  then 
it  is  questionable  whether  we  should  undertake  the  venture  at  all. 
At  the  time  I  will  not  say  that  under  these  circumstances  a  con- 
cession ought  to  be  granted  to  the  American  company.  If  it  is  to 
be  only  a  matter  of  a  small  loss  for  the  state,  I  should  be  inclined 
to  request  the  house  to  sanction  the  venture,  in  the  .hope  that  ulti- 
mate success  will  enable  us  to  recoup  the  initial  losses."  These 
were  bold  words  to  be  spoken  by  a  government  official,  and 
evoked  a  loyal  response  in  the  legislature.  Accordingly  the  tele- 
1  Cf.  F.  Meili:  Das  Tekpkonrecht. 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS          29 

graph  authorities  at  once  sent  out  a  call  for  subscriptions  to  its 
proposed  exchange  system,  but  only  seventeen  were  received. 
The  venture  was  then  temporarily  dropped. 

The  author  of  the  annual  report  of  the  Stuttgart  Chamber  of 
Commerce  and  Industry  displayed  a  good  deal  of  chagrin  at  the 
failure  of  local  business  men  to  make  a  better  response  to  the  tele- 
graph authorities'  offer.  He  ascribed  the  failure  to  two  causes. 
First,  business  men  in  Stuttgart  were  not  so  eager  to  secure  tele- 
phone connection  as  in  the  larger  German  cities,  because  city  dis- 
tances were  shorter.  Indeed,  he  went  on  to  say,  on  the  Continent 
in  general,  the  need  for  telephone  exchange  service  was  not  as 
great  as  in  America  "  on  account  of  the  more  compact  construction 
of  most  of  the  older  cities."  Even  in  Berlin  itself  the  response  to 
the  call  for  subscriptions  had  not  been  as  great  as  was  expected,  a 
fact  which  seemed  to  show  that  it  would  have  been  better  to  have 
left  the  initial  work  of  introducing  the  telephone  to  private  enter- 
prise. The  latter  would  be  more  energetic  in  awakening  the  public 
to  a  realization  of  the  merits  of  telephone  communication.  But, 
he  was  careful  to  add,  the  concession  should  be  granted  only  for  a 
short  term  of  years.  In  the  second  place,  business  men  were  de- 
terred from  sending  in  their  subscriptions  by  the  height  of  the 
charges  and  the  requirement  of  a  two  years'  contract.  The  report 
closed  with  a  prophecy  of  a  rapid  increase  of  subscribers  once  the 
exchange  should  be  established  and  an  appeal  to  the  telegraph 
authorities  not  to  abandon  their  venture  on  account  of  the  result 
of  the  preliminary  canvass. 

This  is  an  interesting  report.  In  the  first  place  the  author  recog- 
nized very  clearly  the  influence  possessed  by  purely  physical  condi- 
tions over  the  demand  for  telephone  service.  His  suggestion  in 
regard  to  a  short-term  concession  as  a  device  for  shifting  the  bur- 
den of  the  initial  risk  to  private  enterprise  was  a  not  unnatural  one. 
Public  authorities  the  world  over  have  found  that  a  seductive 
means  of  evading  responsibility.  In  this  case  it  possessed  an  addi- 
tional power  of  seduction  inasmuch  as  it  would  relieve  the  Chamber 
of  Commerce  and  Industry  of  its  share  likewise  of  the  burden  of 
educating  public  opinion.  The  author  of  the  report  was  shrewd 
enough  to  discern  that  aspect  of  his  case  and  did  wisely  not  to 


30  PUBLIC  OWNERSHIP  OF  TELEPHONES 

press  his  suggestion.  As  a  matter  of  fact,  the  device  was  actually 
tried  in  a  number  of  countries,  and  the  results  of  the  policy  of 
evasion  of  responsibility  will  receive  attention  in  a  later  chapter. 
It  will  suffice  here  to  observe  that  the  proposed  rate  was  the  same 
as  that  established  in  the  rest  of  Germany  and  was  very  much 
lower  than  the  rates  established  in  the  earliest  exchange  systems 
in  England  and  France.  Most  interesting  of  all  is  the  fact  that  the 
confidence  of  the  author  of  the  report  in  the  future  of  the  telephone 
was  shared  by  the  public  telegraph  authorities. 

The  sequel  is  contained  in  the  report  for  the  following  year.1  In 
January,  1882,  one  of  the  ministers  of  the  Crown  summoned  a 
meeting  of  representative  business  men  and  begged  their  co- 
operation in  the  work  of  establishing  an  exchange.  At  the  same 
time  he  promised  a  reduction  of  20  %  in  the  rate,  when  sixty  sub- 
scribers should  be  secured.  This  time  the  response  was  better.  In 
May,  1882,  the  exchange  was  opened. 

The  report  of  the  Chamber  for  the  year  1882  makes  no  mention 
of  the  telephone.  The  next  year,  however,  it  chronicles  the  satis- 
factory operation  of  the  exchange  and  continues  with  an  account 
of  an  interview  between  a  delegation  of  leading  business  men  and 
the  minister  in  charge  of  the  department.2  The  former  promised  83 
additional  subscribers  if  the  rate  were  further  reduced  by  37.5  %. 
The  minister  replied  that  such  a  reduction  was  out  of  the  question, 
but  promised  to  reduce  the  rate  by  12.  5%.  The  new  rate  went 
into  effect  January  i,  1884.  Stuttgart  then  had  the  cheapest 
service  in  Germany. 

Stuttgart  is  the  only  important  commercial  city  in  Wurtemberg. 
As  late  as  1905  no  other  city  had  a  population  of  50,000.  The 
extension  of  exchange  service  was  therefore  slow.  In  1883  an  ex- 
change was  opened  in  Cannstatt,  near  Stuttgart,  and  toll-connec- 
tion established  between  the  two  cities.3  Public  pay-stations  were 
opened  in  both  cities  to  enable  non-subscribers  to  make  use  of  the 
service.  In  1886  an  exchange  was  opened  in  Heilbronn  and  toll- 
service  established  with  Stuttgart,  and  in  the  following  year  the 

1  HGK  Stuttgart,  1881,  p.  10.  The  business  year  1881  ended  June  30, 1882. 

2  HGK  Stuttgart,  1883,  p.  99. 

»  Verwaltungsbericht  (Wurtemberg),  1883-84,  p.  74. 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS         31 

same  was  done  in  Ulm.1  Thereafter  the  extension  of  exchange- 
service  became  more  rapid,  four  new  exchanges  being  opened  in 
i888.2  The  construction  of  toll-lines  kept  pace  with  the  extension 
of  exchange-service,  and  Stuttgart  quickly  became  the  center  of  a 
number  of  radial  lines.3 

The  Wurtemberg  telegraph  administrators  imitated  the  exam- 
ple of  the  imperial  telegraph  authorities  with  regard  to  the  instal- 
lation of  the  telephone  in  rural  telegraph  offices.  This  work,  how- 
ever, did  not  go  on  as  rapidly  as  in  the  imperial  telegraph  area,  for 
the  reason  that  rural  Wurtemberg  was  already  better  supplied 
with  telegraph  offices  of  the  ordinary  kind.  By  the  end  of  the  fiscal 
year,  1885,  however,  the  number  of  telegraph  offices  with  telephone 
operation  had  reached  34,  and  in  the  following  year  this  number 
was  increased  to  53. 4  A  number  of  such  lines  were  built  from  Stutt- 
gart into  the  surrounding  country  towns,  where  they  terminated 
in  public  pay  stations.5  It  is  interesting  to  note  that  this  class  of 
service  preceded  the  establishment  of  local  exchange  service  in 
these  towns. 

In  their  conduct  towards  the  telephone  the  Wurtemberg  tele- 
graph authorities  cannot  be  accused  of  a  lack  of  enterprise.  They 
certainly  did  all  that  was  expected  of  them  by  the  most  influential 
members  of  the  local  business  world.  If  the  desired  concession  had 
been  granted  to  the  American  telephone  company,  the  service 
would  probably  have  been  inaugurated  a  few  months  earlier  than 
it  was.  Be  that  as  it  may,  after  the  first  pangs  of  disappointment 
at  the  result  of  the  preliminary  canvass,  the  reports  of  the  local 
Chamber  of  Commerce  and  Industry  never  once  referred  to  the 
refusal  of  the  concession  with  regret. 

The  other  South  German  telegraph  system  remaining  after  1870 
under  independent  local  management  was  that  of  Bavaria.  The 
same  circumstances  that  led  to  the  introduction  of  the  telephone 
by  the  telegraph  authorities  in  the  other  parts  of  Germany  brought 
about  a  like  result  there.  Without  showing  the  slightest  indecision 
the  Bavarian  authorities  accepted  Stephan's  interpretation  of  his 

1  Verwaltungsbericht  (Wurtemberg),  1887-88,  p.  in. 

2  Ibid.,  1888-89,  p.  86.  4  Venvaliungsbericht,  1886-87,  P-  78. 
1  HGK  Stuttgart,  1883,  p.  99.  5  Ibid.,  1887-88,  p.  in. 


32  PUBLIC  OWNERSHIP  OF  TELEPHONES 

constitutional  powers  and  duties.  No  attempts  appear  ever  to 
have  been  made  by  private  speculators  to  establish  an  exchange 
system  in  the  Bavarian  capital.  Indeed,  no  discussion  seems  ever 
to  have  arisen  over  the  relative  merits  of  the  policies  of  public 
monopoly  and  of  free  competition  in  the  supply  of  telephone  ser- 
vice. The  decision  of  the  public  authorities  was  tacitly  accepted 
on  all  sides.  The  government  was  left  unquestioned  to  demon- 
strate the  advantages  or  disadvantages,  as  the  case  might  be,  of 
the  policy  of  the  public  ownership  of  the  means  of  communication 
upon  which  it  had  embarked  a  generation  earlier.  The  account  of 
the  establishment  of  the  first  telephone  exchange  by  the  Bavarian 
authorities  is  drawn,  as  in  the  case  of  Wurtemberg,  from  the  re- 
ports of  the  Chamber  of  Commerce  and  Industry  having  its  seat 
in  the  capital  city.1 

The  Bavarian  authorities,  though  accepting  Stephan's  theory, 
failed  to  display  his  energy  in  putting  the  theory  into  practice.  At 
the  same  time  that  exchange  service  was  inaugurated  in  other 
parts  of  the  empire,  a  movement  in  favor  of  the  establishment  of 
an  exchange  in  Munich  was  organized  by  the  local  commercial 
association  (Handelsverein).  Yet  a  considerable  period  elapsed 
before  the  local  telegraph  authorities  could  be  induced  to  imitate 
the  example  of  their  neighbors  in  the  imperial  postal  areas  and 
in  Wurtemberg.  At  last,  July,  1882,  a  proclamation  was  issued 
inviting  subscriptions  to  the  proposed  exchange  system.  The 
commencement  of  construction  was  made  conditional  on  the 
response  of  at  least  one  hundred  subscribers.  That  number  was 
reached  before  the  end  of  the  month  and  work  was  begun  at  once. 

Nevertheless  the  Chamber  of  Commerce  and  Industry  was  dis- 
satisfied with  the  progress  of  the  work,  and  in  August  sent  a  peti- 
tion to  the  telegraph  authorities  in  which  its  criticisms  of  the 
management  of  telephone  affairs  are  set  forth  in  full.  The  slowness 
of  business  men  to  respond  to  the  call  for  subscriptions  was  caused 
in  its  opinion  by  the  unattractive  conditions  imposed  by  the  tele- 
graph authorities.  The  Chamber  complained  that  the  rate  of 

1  HGK  Oberbayern,  1881,  pp.  42-56.  Munich  is  situated  in  the  district  of  Upper 
Bavaria.  The  report  covers  the  financial  year  ending  June  30, 1882,  and  in  fact  was 
not  published  till  several  months  later. 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS         33 

charge,  which  was  three  fourths  of  that  in  force  in  the  imperial 
exchange  service,  was  too  high,  and  denounced  the  long  contract 
period  of  five  years  as  absurdly  unbusinesslike  and  very  detrimen- 
tal to  the  progress  of  telephony.  The  former  complaint  will  be 
discussed  in  a  later  chapter.  It  will  suffice  to  observe  here  that  a 
cardinal  maxim  of  all  enterprising  business  men  is  never  to  lose  an 
opportunity  of  expressing  a  wish  for  lower  rates.  The  other  com- 
plaint had  more  justification.  One  of  the  essential  characteristics 
of  true  enterprise  is  the  willingness  to  bear  all  the  reasonable  risks 
of  the  undertaking.  There  must,  however,  be  some  security 
against  capricious  demands  for  service.  In  order  to  guard  against 
the  danger  that  subscribers  to  a  new  business  venture  will  change 
their  minds  and  leave  the  management  with  a  quantity  of  una- 
mortized  but  abandoned  plant  on  their  hands,  charges  for  service 
at  first  must  be  so  fixed  as  to  leave  a  good  margin  above  the  cost 
of  service.  This  serves  as  a  sort  of  insurance  against  unexpected 
disfavor  on  the  part  of  the  public.  If  the  charge  for  the  service  is 
exceptionally  low,  a  long  contract  period  is  not  an  unreasonable 
measure  of  protection.  The  insistence  upon  a  period  as  long  as 
five  years,  nevertheless,  lays  the  management  open  to  a  charge 
of  unduly  discouraging  the  subscriptions  of  many  sincerely  scepti- 
cal members  of  the  public. 

The  telegraph  authorities,  however,  adhered  for  the  time  being 
to  this  condition.  As  regards  a  number  of  minor  points,  on  the 
other  hand,  they  acceded  to  the  wishes  of  their  petitioners.  The 
fee  for  forwarding  telephone  messages  by  telegraph  was  reduced 
and  the  area  of  delivery  was  extended  throughout  the  entire  tele- 
graph system.  Telephones  were  installed  in  all  the  state  freight 
sheds  and  depots  and  public  pay  stations  in  the  same  places,  as 
well  as  in  all  post  and  telegraph  offices.1  In  its  report  for  the  fol- 
lowing year  the  Chamber  expressed  itself  without  reserve  as  well 
pleased  with  the  businesslike  attitude  the  telegraph  authorities 
had  adopted  and  referred  especially  to  the  pains  they  had  taken 
to  teach  the  public  the  proper  use  of  the  system.  In  fact,  they  had 
granted  the  use  of  the  service  to  all  subscribers  as  fast  as  connected, 
free  of  charge  until  the  official  opening  of  the  exchange  on  May  i, 

1  HGK  Oberbayern,  1882,  pp.  88-93. 


34  PUBLIC  OWNERSHIP  OF  TELEPHONES 

1883.  There  was  then  a  total  of  145  subscribers.  A  rehearsal  of 
their  leading  occupations  is  interesting  as  a  commentary  on  the 
nature  of  the  demand  for  telephone  service  at  that  time.  At  the 
head  of  the  list  were  the  bankers  and  brokers,  33  in  number;  next 
in  order  were  the  wholesale  merchants  and  the  brewers  with  7  each; 
no  other  occupations  had  more  than  one  or  two  representatives; 
and  no  less  than  60  connections  were  used  for  official  purposes  by 
the  state  and  municipal  authorities. 

The  report  of  the  Chamber  of  Commerce  and  Industry  for  1883 
was  enthusiastic  over  the  extension  of  the  exchange.1  It  praised 
highly  the  businesslike  methods  of  the  management,  and  expressed 
a  special  satisfaction  at  the  system  of  private  branch  exchanges 
which  had  been  introduced,  by  which  large  users  with  several 
instruments  could  make  connections  on  their  own  premises  for 
purely  domestic  conversations.  In  1884  the  Chamber  found  fault 
because  technical  difficulties  had  compelled  the  administration 
temporarily  to  retard  the  further  expansion  of  the  system.2  In  the 
following  year,  however,  everything  was  once  more  all  that  could 
be  desired.3  In  1886  there  was  the  same  report.4 

Meanwhile  other  cities  were  beginning  to  recognize  the  existence 
of  a  need  for  telephone  exchange  service.  Munich,  as  the  capital 
and  largest  city  in  Bavaria,  was  the  first  to  demand  and  to  receive 
an  exchange.  But  in  the  northern  part  of  the  kingdom,  Nuremberg 
was  a  prosperous  city  of  rapidly  increasing  industrial  importance 
and  could  not  long  be  expected  to  dispense  with  a  similar  con- 
venience. Apparently  it  found  no  difficulty  in  obtaining  the  es- 
tablishment of  an  exchange  when  wanted.  The  reports  of  the 
Chamber  of  Commerce  and  Industry  which  has  its  seat  in  that 
city  contained  no  mention  of  the  telephone  until  1886.  Then,  for 
the  first  time,  there  is  a  cursory  reference  to  the  telephone  service 
which  shows  the  exchange  to  have  been  already  established.5  The 
reasonable  inference  is  that  the  response  of  the  telegraph  authori- 

1  HGK  Oberbayern,  1883,  pp.  102-103.  2  Ibid.,  1884,  pp.  92-93. 

3  Ibid.,  1885,  p.  72.  "Die  Telephonanlage  in  Miinchen  ist  in  erfreulichen  Fort- 
schritten  begriffen." 

4  Ibid.,  1886,  pp.  107-110. 

5  HGK  Mittelfranken,  1886,  p.  73.    Nuremberg  is  situated  in  the  district  of 
Middle  Franconia. 


PROMOTION  OF  TELEPHONE  UNDERTAKINGS         35 

ties  to  the  request  of  the  local  business  men  for  a  telephone  ex- 
change service  was  so  prompt  and  energetic  that  the  whole  affair 
seemed  too  unimportant  to  be  mentioned  in  a  report.  Exchanges 
were  established  in  the  other  cities  of  commercial  importance 
in  the  same  quiet  way.  In  1886  the  existence  of  an  exchange  in 
Augsburg  is  made  evident  by  a  cursory  reference  in  the  report  of 
the  chamber  having  its  seat  in  that  city.1 

At  the  same  time  reference  was  made  to  the  long-distance  service 
between  Augsburg  and  Munich.  The  establishment  of  the  two 
kinds  of  service  was  apparently  synchronous.  In  that  case  Ba- 
varia was  one  year  behind  the  rest  of  Germany  in  the  establishment 
of  long-distance  service.  In  regard  to  local  exchange  service  Ba- 
varia was  slower.  The  first  exchange  was  not  officially  opened 
until  two  years  after  the  inauguration  of  such  service  by  Stephan, 
and  for  another  period  of  two  years  that  was  the  only  exchange 
to  be  established  on  the  initiative  of  the  Bavarian  authorities.2 
As  late  as  the  year  1890  there  were  only  thirteen  exchanges  in  all 
Bavaria.3  A  careful  perusal  of  the  reports  of  the  chambers  of 
commerce  and  industry,  however,  reveals  no  feeling  of  dissatis- 
faction with  the  extent  of  the  service  or  the  methods  of  the  admin- 
istration. If  there  were  not  more  telephone  exchanges  in  operation 
the  explanation  must  be  either  that  the  service  was  too  dear  or 
that  more  were  not  wanted.  The  former  alternative  will  be  dis- 
cussed in  its  place.  Concerning  the  latter,  it  should  be  borne  in 
mind  that  Bavaria  is  one  of  the  most  conservative  parts  of  the 
German  Empire,  is  inhabited  largely  by  an  agricultural  population, 
and  possesses  only  a  relatively  small  number  of  the  sort  of  finan- 
cial and  commercial  undertakings  which  in  the  early  years  of 
telephony  were  everywhere  the  principal  users  of  the  service. 

On  the  whole  the  Bavarian  telegraph  authorities  seem  to  have 
seized  the  opportunity  presented  by  the  invention  of  the  telephone 
with  as  much  promptness  and  energy  as  the  circumstances  re- 
quired. Though  they  were  a  trifle  slow  in  making  a  beginning 

1  HGK  Schwaben  und  Neuberg,  1886,  p.  30. 

2  In  1882  an  exchange  was  established  in  Ludwigshafen,  across  the  Rhine  from 
Mannheim,  in  connection  with  the  exchange  which  Stephan  established  in  the  latter 
city  in  1881. 

*  Stalisiischer  Bericht  Bayerischer  Verkehrsanstallen,  1890,  p.  142. 


36  PUBLIC  OWNERSHIP  OF  TELEPHONES 

there  was  never  any  general  discontent  with  their  conduct  of  tele- 
phone affairs.  There  was  never  even  the  whisper  of  a  suggestion 
that  it  would  have  been  better  to  have  left  the  whole  business  to 
private  enterprise. 

Upon  the  western  border  of  the  German  Empire  the  example  of 
the  German  telegraph  administration  had  an  imitator,  the  little 
grand  duchy  of  Luxemburg.  The  inhabitants  of  Luxemburg  are 
for  the  most  part  a  prosperous  rural  peasantry.  The  capital  is  an 
unpretentious  place  of  some  historical  interest  but  of  little  com- 
mercial importance,  and  the  entire  population  of  the  grand  duchy 
numbered  only  246,455  at  the  last  enumeration.  When  the  early 
promoters  of  telephone  exchange  systems  were  seeking  concessions 
at  the  various  European  capitals  and  commercial  centers,  they  did 
not  consider  the  prospects  of  a  remunerative  demand  for  telephone 
service  in  Luxemburg  bright  enough  to  warrant  them  in  applying 
for  a  concession.  Hence  Luxemburg  remained  without  telephone 
service  for  several  years.  Finally  the  rulers  of  the  little  country, 
believing  that  the  telephone  would  fill  a  real  need  in  bringing  its 
scattered  villages  into  closer  connection  with  the  capital,  deter- 
mined to  introduce  the  service  on  their  own  responsibility.  Accord- 
ingly, in  1884,  the  telephone  was  declared  to  be  a  part  of  the  state 
telegraph  monopoly  and  by  a  decree  of  December  17  of  the  same 
year  provision  was  made  for  the  establishment  of  toll  lines  and  ex- 
change systems.1 

Tarifs  t61. 1,  pp.  67-77. 


CHAPTER  III 

THE  DEVELOPMENT  OF  THE  TELEPHONE  BUSINESS  BY  THE 
TELEGRAPH  AUTHORITIES:  RELATIONS  WITH  THE  PUBLIC 

UNDER  a  regime  of  unfettered  private  enterprise  any  service 
that  has  a  prospect  of  becoming  a  paying  venture  will  presumably 
be  undertaken  at  once  by  some  speculative  business  man.  His 
desire  for  a  profit  will  stimulate  him  to  create  at  his  own  risk 
the  facilities  which  he  judges  to  be  necessary  in  order  to  render  the 
service  for  which  he  believes  he  has  discovered  a  need.  If  his  ven- 
ture does  not  meet  with  success,  the  logical  conclusion  is  that  the 
service,  which  he  proposed  to  offer,  was  not  so  urgently  wanted  as 
he  expected.  In  that  case  the  unfortunate,  and  perhaps  also  im- 
prudent, business  man  pays  the  penalty  of  his  mistake  with  his 
fortune,  in  whole  or  in  part,  and  the  community  receives  the  lesson 
of  his  experience  for  nothing.  By  the  organization  of  companies 
with  limited  liability,  an  attempt  is  made  to  encourage  the  spirit 
of  business  enterprise  by  dividing  the  risk,  but  the  principle  is  the 
same.  The  self-interest  of  individuals  is  relied  upon  to  supply 
the  community  with  those  services  for  which  it  is  willing  to  pay, 
and  to  protect  it  against  the  establishment  of  those  for  which 
it  is  unwilling  to  pay.  The  individual,  by  seeking  his  own  profit, 
promotes  that  of  the  community  of  which  he  is  a  part. 

This  is  not  the  place  for  the  discussion  of  the  rule  of  laissez  faire 
or  of  the  philosophical  doctrines  on  which  it  is  based.  It  suffices  to 
point  out  that  the  German  postal  authorities  had  the  telegraph 
business  thrust  upon  them,  and  then  voluntarily  assumed  the 
additional  trust  created  by  the  invention  of  the  telephone.  The 
most  important  question  now  is,  how  have  they  gone  about  the 
task  of  performing  their  trust  in  the  interest  of  the  communities 
they  have  been  called  upon  to  serve? 

We  already  know  that  they  displayed  a  commendable  amount 
of  enterprise  in  entering  upon  the  telephone  business.  Yet  it  is 
one  thing  to  undertake  a  new  venture  and  another  to  carry  it  to  a 


38  PUBLIC  OWNERSHIP  OF  TELEPHONES 

successful  end.  The  continuous  expansion  of  the  telephone  busi- 
ness to  keep  pace  with  an  ever-growing  want,  and  the  continuous 
differentiation  of  the  service  that  is  supplied  in  order  to  keep  pace 
with  an  ever-increasing  diversity  of  the  want,  constitute  more 
exhaustive  tests  of  the  business  capacity  of  a  body  of  public  au- 
thorities than  does  the  original  establishment  of  the  undertaking. 
In  short,  we  wish  to  know  what  substitute  for  individual  self- 
interest  is  provided  under  a  regime  of  public  enterprise  as  a  means 
of  promoting  the  best  interests  of  a  community.  To  obtain  an 
answer  to  this  question,  a  digression  must  be  made  in  order  to 
study  the  organization  of  public  business  management  in  Ger- 
many. Then  we  can  consider  the  practical  operation  of  that 
organization  with  especial  reference  to  the  telephone  business. 

Legally,  the  telephone  business  in  Germany  is  conducted  by  an 
official  of  the  executive  department  of  the  government  in  the  name 
of  the  head  of  the  state  and  in  accordance  with  the  constitution 
and  laws.  The  responsible  authority  for  the  conduct  of  public 
business  under  the  constitution  of  1871  is  the  Imperial  Chancellor. 
In  practice  he  delegates  his  functions  in  large  part  to  subordinates, 
known  as  Secretaries  of  State,  who  are  responsible  individually  to 
him  for  their  conduct  of  affairs.  The  conduct  of  the  telephone 
business  constitutes  a  part  of  the  work  allotted  to  the  Director 
of  Telegraphs,  who  since  1876  has  been  nominally  a  subordinate  of 
the  Postmaster-General,  with  the  title  of  Under  Secretary  of  State. 
In  fact,  his  competence  over  the  telegraph  and  telephone  business 
is  not  limited  by  his  nominal  dependence  upon  the  Postmaster- 
General.  He  exercises  the  powers  of  the  head  of  an  independent 
business  undertaking  except  so  far  as  his  competency  is  restricted 
by  law,  and  superintends  the  actual  conduct  of  operations,  subject 
to  the  approbation  of  his  master,  the  Chancellor.  Thus  the  work- 
ing chief  of  the  German  telephone  business  does  not  possess  the 
unlimited  discretionary  power  over  the  conduct  of  affairs  that  is 
enjoyed  by  the  owner  of  a  private  business  undertaking  or  to  a  less 
extent  by  the  president  of  a  private  business  corporation.  His 
position  as  a  public  official  subjects  him  to  a  certain  measure  of 
control  by  the  sovereign  in  behalf  of  which  he  exercises  the  powers 
intrusted  to  him. 


RELATIONS  WITH  THE  PUBLIC  39 

Under  the  German  scheme  of  imperial  government,  the  execu- 
tive branch  of  the  government  is  theoretically  responsible  to  the 
Reichstag,  or  imperial  house  of  representatives,  for  the  conduct  of 
such  affairs  as  the  postal  and  telegraph  business.  But  in  fact  the 
Reichstag  has  never  framed  its  rules  of  procedure  with  a  view  to 
ensuring  that  responsibility.  During  the  two  decades  of  the  per- 
sonal rule  of  the  "Iron  Chancellor,"  habits  of  parliamentary  prac- 
tice grew  up  which  have  rendered  the  position  of  his  less  masterful 
successors  far  less  dependent  upon  the  popular  will  than  would  be 
expected  from  a  reading  of  the  constitution  itself.  The  mantle  cut 
for  the  herculean  shoulders  of  a  Bismarck  suffices  to  cover  those  of 
his  successors  and  their  executive  subordinates  as  well.  Annual 
debates  on  the  budget  take  place  in  the  German  Reichstag  as  in 
the  legislatures  of  countries  enjoying  responsible  parliamentary 
government,  but  they  are  incapable  of  attaining  the  same  impor- 
tance in  Germany  as  in  those  other  countries.  No  ordinary  minis- 
ter can  be  forced  out  of  office  as  the  result  of  an  adverse  vote  by 
the  popular  house.  The  Chancellor  himself  must  first  be  van- 
quished. Consequently  criticism  in  the  Reichstag  may  often  be 
illuminating  without  being  effective.  It  is  not  intended  that  the 
representatives  of  the  people  should  enforce  the  popular  will,  nor 
indeed  is  it  admitted  that  there  is  any  popular  will  in  regard  to 
such  matters  as  the  details  of  the  administration  of  public  business 
undertakings.  There  is  only  a  conglomerate  of  more  or  less  im- 
portant personal  and  local  interests  which  cannot  be  expressed  as 
one  homogeneous  popular  will.  To  leave  the  representation  of 
these  special  interests  solely  to  a  legislature  chosen  by  universal 
suffrage  would  be  to  confound  great  political  principles  with  the 
petty  details  of  business  administration.  Hence,  public  obligatory 
organizations  have  been  created  expressly  to  represent  the  peculiar 
interests  of  the  most  important  economic  classes  in  the  commun- 
ity.1 

1  The  only  general  work  on  the  representation  of  economic  interests  is  by  R.  von 
Kaufmann:  Die  Vertretung  der  wirtschaftlichen  Interessen  in  den  Staaten  Euro  pas, 
1879.  The  greatest  extension  of  the  public  organization  of  private  economic  interests 
has  occurred  since  this  book  was  written.  For  more  recent  developments  the  most 
valuable  sources  of  information  are  the  articles  in  the  Handworterbuch  der  Staativis- 
senschaften,  entitled  "Handelskammern,"  "Gewerbekammern,"  and  "Landwirt- 


40  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  first  chambers  of  commerce  were  established  in  Germany 
in  the  commercial  cities  along  the  Rhine  during  the  domination  of 
Napoleon.1  After  his  empire  was  disrupted  these  institutions 
retained  only  a  local  significance,  but  even  so  they  justified  their 
existence.  As  the  older  economic  order  began  to  totter  and  fall  in 
the  rest  of  Germany,  the  need  for  some  organization  of  the  business 
men  to  take  the  place  of  the  special  tradesgilds,  which  were  out  of 
harmony  with  the  rising  spirit  of  business  enterprise,  began  to  be 
felt.  Hence  sprang  up  new  "mercantile  corporations,"2  at  first 
dependent  in  each  commercial  center  upon  the  more  or  less  volun- 
tary agreement  of  the  local  body  of  merchants  among  themselves, 
then  gradually  recognized  by  the  public  authorities  and  made 
obligatory  by  positive  legislation.  These  local  associations  have 
never  been  regulated  by  imperial  legislation,  but  are  required  in 
most  of  the  states  of  the  empire  to  make  written  reports  at  regular 
intervals  to  the  state  authorities.  In  1861  a  voluntary  central 
organization  for  the  whole  of  Germany  was  established  to  which 
practically  all  the  chambers  belonged.  This  is  the  Deutscher 

schaf tskammern."  See  also,  J.  Gensel :  Der  deutsche  Handelstag  in  seiner  Entwickelung 
und  Tdtigkeit  1861-1901,  1902;  and  Hampke:  " Organisationen  und  Einrichtungen 
des  Handwerks,"  in  the  Handbuch  der  Wirlschaftskunde  Deutschlands,  vol.  iv,  1904. 
The  official  organs  of  the  three  leading  economic  interests  are  the  periodicals:  Handel 
und  Gewerbe,  since  1888,  supplemented  by  the  Handbuch  der  Handelskammern,  since 
1905;  Der  Handwerker  (later  the  Deutsche  Handwerkerzeitung:  Organ  des  Zentralaus- 
schusses  der  vereinigten  Innungsverbande);  and  the  Allgemeine  Handwerkerzeitung 
(formerly  the  Allgemeine  Handwerkerblatt:  Organ  des  allgem.  deutschen  Handwerker- 
bundes).  The  agricultural  interests  are  now  represented  primarily  by  the  Zeilschrift 
fiir  Agrarpolitik,  the  organ  of  the  Prussian  Zentralstelle  fiir  Landwirtschaft.  The 
best  account  of  the  organization  of  standing  advisory  councils  for  the  purpose  of 
keeping  the  public  administrative  authorities  in  touch  with  the  various  private 
economic  interests  is  contained  in  two  articles  by  Alfred  von  der  Leyen  (the  editor 
of  the  Archiv  fiir  Eisenbahnwesen)  in  Schmoller's  Jahrbuch  (Jh.  fiir  Gesetzgebung, 
Verwaltung,  und  Statistik}:  "Die  Durchfiihrung  des  Staatsbahnsystems  in  Preussen," 
1883,  and  "Die  Vertretung  der  wirtschaftlichen  Interessen  bei  den  Eisenbahnen," 
1888. 

1  Richard  Zeyss:  Die  Entstehung  der  Handelskammern  und  die  Industrie  am  Nie- 
derrhein  wdhrend  der  franzosischen  H  err  schaf t. 

2  The  word  is  used  in  its  old  sense  of  an  authorized  association  of  merchants. 
Thus  arose,  for  example,  the  "Korporation  der  Kaufmannschaft "  in  Berlin.     The 
use  of  the  term  to  designate  a  stock-company  is  modern  and  confined  to  the  United 
States. 


RELATIONS  WITH  THE  PUBLIC  41 

Handelstag,  or  congress  of  German  commercial  associations.  A 
general  assembly  is  held  once  a  year  at  which  political  questions 
affecting  the  economic  interests  of  the  mercantile  classes  are  dis- 
cussed and  arrangements  made  for  concerted  action  in  order  to 
promote  their  peculiar  interests.  This  organization  has  com- 
mended itself  to  the  German  temperament.  In  consequence  the 
relations  between  the  chambers  of  commerce  and  the  administra- 
tive authorities  of  the  German  states  and  of  the  empire  are  close 
and  cordial. 

In  recent  years  the  theory  of  the  special  representation  of 
economic  interests  has  been  applied  on  a  wider  scale.  In  the  early 
nineties  the  long-continued  agricultural  depression  spurred  on  the 
public  authorities,  especially  in  Prussia,  to  devise  new  methods 
of  improving  the  condition  of  the  rural  population.  One  result  of 
this  activity  was  the  creation  of  agricultural  chambers  (Land- 
wirtschaftliche  Kammerri).  The  Prussian  law  of  June  30,  1894, 
provided  for  the  reorganization  of  the  previously  existing  volun- 
tary agricultural  associations  as  public  representative  bodies, 
supported  by  a  special  surtax  imposed  on  the  ordinary  land-tax, 
and  entrusted  with  the  duty  of  safeguarding  and  promoting  all 
agricultural  interests  in  their  respective  districts.  This  Prussian 
example  has  been  followed  in  a  number  of  other  German  states. 
In  others,  agricultural  representation  still  remains  on  a  private 
basis. 

At  this  same  time  the  needs  of  the  industrial  handicraftsmen 
were  also  receiving  consideration.  The  steady  progress  of  the  fac- 
tory system  of  industry  was  the  source  of  continuous  hard  times 
for  this  unfortunate  class.  Many  of  its  members  believed  their 
only  salvation  to  be  a  return  to  the  gild  system  and  a  reorganiza- 
tion of  Handwerk  on  the  basis  of  control  of  the  local  market,  so 
far  as  the  local  market  for  hand-made  goods  still  remained,  by 
the  associated  masters  in  each  craft.  In  1897  a  wav  was  found  of 
satisfying  this  belief  without  sacrificing  any  of  the  fruits  of  the 
industrial  freedom  which  is  the  basis  of  the  modern  factory  system. 
The  imperial  act  to  reestablish  gilds  of  handicraftsmen  (Reichs- 
innungsgesetz  of  1897)  provided  for  the  establishment  of  local  or- 
ganizations throughout  the  empire,  which  were  intended,  among 


42  PUBLIC  OWNERSHIP  OF  TELEPHONES 

other  purposes,  to  serve  the  handicraftsmen  and  small  "  manu- 
facturers" in  the  same  way  as  the  chambers  of  commerce  already 
served  the  big  merchants  and  factory  owners.  The  line  between 
the  two  classes  was  not  easy  to  draw.  In  practice,  it  was  drawn 
arbitrarily.  An  industrial  undertaking,  the  income  of  which  is 
assessed  at  more  than  three  thousand  marks,  is  usually  classed 
as  a  factory  and  its  owner  assigned  to  representation  in  a  chamber 
of  commerce,  or  Handelskammer.  An  establishment  yielding  a 
smaller  annual  net  income  is  classed  as  a  handicraft,  and  its  owner 
assigned  to  representation  in  a  chamber  of  crafts,  or  Gewerbekam- 
mer.  The  proper  classification  of  "  storekeepers,"  especially  of 
small  retailers,  a  class  which  scarcely  existed  in  the  halcyon  days 
of  the  gilds,  gave  rise  to  a  great  deal  of  divergence  of  opinion,  and 
was  not  permanently  settled  to  anybody's  satisfaction.  The  Ge- 
werbekammern,  like  the  Handelskammern,  have  organized  an  annual 
congress,  known  as  the  Deutscher  Handwerks-und-Gewerbekam- 
mertag. 

Last  of  all  has  come  the  question  of  creating  an  organization  to 
represent  the  peculiar  economic  interests  of  the  laboring  classes. 
Under  the  German  imperial  constitution  the  laboring  classes  have 
been  able  to  secure  a  large  political  representation  without  attain- 
ing a  proportionate  political  influence.  Hence  their  economic 
interests  are  always  in  danger  of  receiving  less  consideration  than 
is  accorded  to  those  of  the  other  classes.  This  is  felt  by  them  to 
constitute  a  real  grievance,  which  in  turn  has  lent  additional  force 
to  their  political  movement.  The  government  has  been  unwilling 
to  increase  their  political  influence.  The  alternative  is  to  weaken 
the  foundation  of  the  labor  movement  by  legislation  which,  by 
ameliorating  the  economic  situation  of  the  laboring  classes,  will 
mitigate  their  spirit  of  discontent.  The  great  illustration  of  this 
policy  is  Bismarck's  system  of  compulsory  insurance  for  working- 
men.  With  the  same  purpose  von  Billow's  government  introduced 
a  bill  into  the  Reichstag  in  the  spring  of  1908  to  provide  for  the 
establishment  of  chambers  of  labor  (Arbeitskammern) .  These 
chambers  of  labor  were  to  be  composed  of  representatives  of  both 
labor  and  capital,  and  were  to  have  for  their  object  the  conciliation 
of  industrial  disputes,  and  the  general  improvement  of  the  rela- 


RELATIONS  WITH   THE  PUBLIC  43 

tions  between  labor  and  capital.  The  laboring  classes,  however, 
declared  themselves  in  favor  of  the  erection  of  chambers  of  labor 
composed  solely  of  laboring  people,  and  hotly  opposed  the  gov- 
ernment's bill.  As  the  employers  opposed  it  also,  the  bill  had  to  be 
withdrawn.  It  is  improbable,  however,  that  the  economic  interests 
of  the  wage  earners  will  long  remain  without  special  organized 
representation.1 

Each  of  these  various  local  chambers  employs  a  trained  secre- 
tary or  Syndikus,  usually  a  university  graduate,  as  a  permanent 
official.  He  conducts  the  business  of  the  chamber,  and  reports 
once  a  year  to  the  political  authorities  of  the  empire  or  state, 
according  as  the  chamber  is  organized  under  an  imperial  or  a  state 
law.  In  Prussia  the  chambers  organized  under  state  law  report  to 
the  minister  of  the  interior.  In  the  office  of  the  latter  the  recom- 
mendations and  complaints  are  sorted  and  distributed,  each  to 
the  branch  of  the  public  administration  concerned.  Thus,  for 
example,  all  extracts  from  reports  concerning  the  telephones  are 
sent  to  the  imperial  postal  and  telegraph  department.  Besides 
making  annual  reports  to  the  imperial  or  state  governments,  as 
the  case  may  be,  the  organized  economic  interests  serve  as  electoral 
bodies  by  which  advisory  councils  are  chosen  to  assist  the  public 
authorities  in  the  management  of  some  of  the  great  public  business 
enterprises.  The  origin  of  this  form  of  private  cooperation  in 
public  administration  goes  back  to  the  first  years  of  the  empire. 

One  result  of  the  Franco-Prussian  war  was  the  acquisition  of 
Elsass-Lothringen.  At  the  same  time  that  these  provinces  became 
imperial  territory  the  ownership  of  the  French  railway  lines  which 
had  been  built  therein  passed  to  the  imperial  government.  At 
first  they  were  administered  by  the  imperial  railroad  authorities 
on  the  ordinary  commercial  principles.  In  the  fall  of  1874,  how- 
ever, the  Chamber  of  Commerce  at  Miilhausen  proposed  to  the 
imperial  railroad  authorities  that  "  instead  of  conferring  about 
railroad  matters  from  time  to  time  with  individual  business  men, 
or  even  with  particular  public  administrations  as  hitherto  had  been 
the  practice,  in  future  they  should  summon  representatives  of  all 
the  chambers  of  commerce  in  the  territory  to  regular  meetings  at 
1  The  bill  was  introduced  again  in  the  session  of  1909,  but  was  not  enacted. 


44  PUBLIC  OWNERSHIP  OF  TELEPHONES 

which  railroad  matters  of  public  interest  should  be  openly  dis- 
cussed." The  manager  of  the  imperial  railways,  von  Maybach, 
promptly  accepted  this  suggestion  and  arranged  to  put  it  into 
operation  at  once.  He  did  more.  On  January  n,  1875,  he  issued  a 
circular  letter  recommending  all  the  railroads  in  Germany  to  do 
the  same.  He  recommended  further  that  the  representation  be  not 
confined  to  the  chambers  of  commerce,  but  be  extended  also  to 
include  the  agricultural  classes.  Most  of  the  important  lines, 
however,  were  then  in  private  hands  and  nothing  of  consequence 
came  of  von  Maybach's  suggestion. 

Then  von  Maybach  was  promoted  to  the  position  of  Minister  of 
Commerce  in  Prussia  and  thereby  became  in  a  position  to  order 
what  he  could  previously  only  recommend.  He  did  so  by  an  ad- 
ministrative order  issued  June  27, 1878;  but  before  this  order  could 
be  put  into  execution,  Bismarck's  great  project  for  the  nationali- 
zation of  the  Prussian  railways  was  introduced  into  the  Landtag. 
In  accordance  with  the  report  of  the  legislative  commission,  the 
Landtag  made  its  consent  to  Bismarck's  scheme  of  nationalization 
conditional  on  the  establishment  of  an  organized  representation  of 
economic  interests  in  the  management  of  the  state  railroads  on 
certain  definite  principles  laid  down  in  the  report  of  the  commis- 
sion. The  plan  which  the  government  drew  up  in  accordance  with 
these  principles  failed  to  meet  with  the  approval  of  the  legislature 
because,  among  other  reasons,  it  contemplated  a  combination  of 
political  with  economic  representation.  After  prolonged  legisla- 
tive discussion,  an  act  to  provide  for  the  establishment  of  district 
railway  councils  (Bezirkseiseribahnrate) ,  and  of  one  central  council 
(Landeseisenbahnraf)  for  the  whole  of  Prussia  was  adopted  and 
went  into  effect  on  January  i,  1883. 

The  political  features  of  the  earlier  plan  were  eliminated  and  the 
representation  of  interests  was  purely  economic.  This  was  much 
more  nearly  in  accord  with  von  Maybach's  original  scheme,  which, 
by  the  way,  had  already  been  adopted  in  several  of  the  other  Ger- 
man states.  In  Prussia  district  councils  were  organized  in  each 
railroad  division,  containing  from  twenty  to  fifty  members  each. 
The  total  number  of  representatives  of  the  commercial  and  great 
industrial  interests  was  102,  of  the  small  industrial  and  handicraft 


RELATIONS  WITH  THE  PUBLIC  45 

interests  77,  and  of  the  agricultural  interests  no.  Members  were 
chosen  for  three  years  directly  by  the  local  organizations  of  the 
various  interests.  The  central  council  was  composed  of  forty  mem- 
bers, thirty  chosen  by  the  district  councils,  twelve  representing 
agriculture  and  nine  each  the  great  and  small  industrial  interests. 
Ten  were  appointed  by  the  ministers  of  commerce,  of  public 
works,  and  of  agriculture.  This  organization  has  been  tried  and 
found  useful  in  Prussian  railroad  administration.  No  important 
change  is  made  in  railroad  service,  especially  none  in  regard  to 
rates,  until  the  representatives  of  the  economic  interests  have  had 
an  opportunity  to  be  heard.  These  councils  have  had  no  connec- 
tion with  the  telephones,  however,  because  the  Prussian  railroads 
and  the  imperial  telephones  are  two  entirely  distinct  services.  In 
the  imperial  telephone  service  no  standing  representative  councils 
have  been  created.  When  the  imperial  telephone  authorities  con- 
template an  important  change  in  policy,  they  summon  a  special 
meeting  of  representatives  of  the  economic  interests  to  be  affected. 
In  the  two  South  German  States  of  Bavaria  and  Wurtemberg, 
railroads  and  telegraphs  are  in  the  same  hands  and  the  same  organ- 
ization serves  for  both  services.  The  Wurtemberg  advisory  coun- 
cil, known  as  the  Beirat  der  Verkehrsanstalten,  was  created  in  1878 
and  .reorganized  in  iSSi.1  It  consists  of  sixteen  members,  eight 
representing  agriculture  and  eight  representing  industry  and  com- 
merce jointly.  The  latter  were  elected,  one  each,  by  the  eight 
Wurtemberg  chambers  of  commerce  and  industry.  The  elections 
occur  at  the  same  place  and  time  as  the  triennial  election  of  mem- 
bers of  the  eight  local  chambers.  The  agricultural  representatives 
are  chosen  at  the  same  time  by  the  members  of  the  so-called 
Zentralstelle  fur  die  Landwirtschaft.  This  is  an  administrative 
bureau  created  in  1877,  to  represent  and  promote  the  interests  of 
the  voluntary  local  agriculture  associations.2  Meetings  of  the 
council  are  bound  to  be  held  at  least  twice  a  year.  For  the  speedier 
transaction  of  less  important  business,  a  standing  commission  of 
six  members,  three  representing  agriculture  and  three  representing 
industry  and  commerce,  is  chosen  from  the  whole  membership  of 

1  Verwaltungsbericht  (Wurtemberg),  1879-80,  pp.  1-3;  1881-82,  pp.  1-4. 
1  RegierungsUatt  (Wurtemberg),  1877,  p.  37. 


46  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  council.  Members  of  the  council  receive  no  pay,  serve  three 
years,  and  are  eligible  for  reelection. 

The  chambers  of  commerce  and  industry  themselves  were  or- 
ganized in  I874.1  All  persons  are  eligible  to  vote  for  members  of 
the  chamber  who  possess  a  registered  business  and  are  assessed 
for  the  business  tax  in  the  district.  Annual  reports  are  required 
to  be  made  to  the  Zentralstelle  fur  Gewerbe  und  Handel,  that  is, 
the  administrative  bureau  charged  with  the  duty  of  promoting  the 
commercial  and  industrial  interests  of  the  kingdom.  These  reports 
are  divided  into  two  portions.  One  contains  an  account  of  the 
business  activity  during  the  year;  the  other  the  complaints  or  sug- 
gestions of  individual  business  men  or  concerns  in  matters  pertain- 
ing to  the  public  administration.  The  chamber  itself  usually  en- 
dorses such  of  these  complaints,  or  suggestions,  as  it  considers  well 
founded.  Thus,  if  the  telephone  exchange  service  in  any  city  is 
inefficient,  or  if  additional  toll  lines  are  needed,  a  record  of  that 
fact  is  sure  to  be  found  in  the  next  annual  report  of  the  chamber 
of  commerce  and  industry  for  the  district  in  which  the  complaint 
has  arisen. 

As  a  result  of  the  establishment  of  separate  chambers  for  handi- 
craftsmen in  consequence  of  the  Reichsinnungsgesetz  of  1897,  the 
chamber  of  commerce  and  industry  had  to  be  reorganized.  In 
1899  the  appropriate  change  of  title  was  made,  but  no  restrictions 
in  the  qualifications  for  membership  were  introduced.2  Apparently 
the  handicraftsmen  were  left  to  sort  themselves  voluntarily  from 
the  "big  fellows.7'  Moreover,  the  chamber  of  commerce  retained 
the  right  to  choose  the  entire  representation  of  the  industrial,  as 
well  as  of  the  commercial,  interests  in  the  railroad  council.  This 
deprivation  was  regarded  by  the  four  young  chambers  of  crafts 
as  a  grievance.3  They  represented,  each  in  its  own  district,  the 
newly  created  voluntary  and  compulsory  gilds  of  handicraftsmen 
and  the  Wurtemberg  societies  of  arts  and  crafts  of  all  sorts. 
The  masters  and  journeymen  of  the  gilds  elected  separate  repre- 
sentatives. These  interests  felt  they  had  little  in  common  with  the 
great  merchants  and  factory  owners,  and  objected  to  intrusting 

1  Regierungsblatt  (Wurtemberg),  1874,  p.  193.  2  Ibid.,  1899,  p.  579. 

8  Jahresbericht  der  Handwerkskammer  (Stuttgart)  fur  das  Jahr  1901.   Einleitung. 


RELATIONS  WITH   THE  PUBLIC  47 

their  economic  interests  to  the  tender  mercies  of  their  bigger  rivals.1 
The  chambers  of  commerce  naturally  wished  no  further  change 
in  the  established  order  of  things,  and  opposed  the  request  of  the 
chambers  of  crafts.2  They  argued  that  the  railroad  and  postal 
authorities  could  secure  all  the  information  they  required  from  the 
existing  council,  and  that  the  crafts  were  adequately  represented. 
Moreover,  if  the  latter  received  special  representation,  then  not 
only  would  the  chambers  of  commerce  desire  a  proportionate  in- 
crease of  their  representation,  but  also  the  apprentices  and  ordinary 
wage  earners  would  begin  to  clamor  for  representation.  Surely 
enough,  this  was  precisely  what  happened.3  In  1905  the  reorgani- 
zation of  the  council  was  definitely  postponed  until  the  question 
of  the  establishment  of  chambers  of  labor  had  been  definitely 
settled. 

The  representation  of  economic  interests  in  Bavaria  is  in  general 
like  that  in  Wurtemberg.  It  is  not  necessary  to  go  into  the  de- 
tails here.  The  handicraftsmen  are  still,  however,  organized  in  the 
same  chambers  with  the  big  commercial  interests,  but  the  cham- 
bers comprise  two  separate  sections,  one  for  each  branch  of  in- 
dustry. 

Enough  has  been  written  to  show  that  German  governmental 
business  enterprises  are  not  administered  blindly  nor  in  disregard 
of  the -wishes  of  the  interests  concerned.  There  is  none  of  the 
spirit  of  arbitrary  authority  so  often  displayed  by  American  cap- 
tains of  industry  and  most  neatly  epitomized  by  the  infamous 
remark  ascribed  by  tradition  to  Commodore  Vanderbilt,  "The 
public  be  damned!"  The  German  theory  of  the  organization  of 
monopolistic  public  services  on  a  large  scale  under  direct  public 
management  is  broad  enough  to  include  a  corresponding  organi- 
zation of  those  portions  of  the  public  to  whom  the  service  is  to 
be  rendered.  The  degree  of  success  which  this  theory  will  obtain 
in  practice  depends,  largely,  on  the  character  of  the  men  to 
whom  is  intrusted  its  execution. 

No  general  observations  can  convey  so  accurate  an  idea  of  the 

1  See  esp.  Jahresbericht  der  H andwerkskammer  (Stuttgart),  1902,  p.  123. 

1  Jahresbericht  der  Handelskammer  (Stuttgart),  1902,  p.  223. 

1  Jahresbericht  der  E andwerkskammer  (Stuttgart),  1904-05,  p.  85. 


48  PUBLIC  OWNERSHIP  OF  TELEPHONES 

interest  displayed  by  German  business  men  in  public  trusts  of  this 
nature  as  a  brief  biographical  notice  taken  from  a  recent  annual 
report  of  one  of  the  Bavarian  chambers  of  commerce.1  The  author 
of  the  report  took  the  occasion  of  the  death  of  the  chairman  of  the 
chamber,  Kommerzienrat  von  Weidert,  to  give  a  brief  account  of 
his  life  and  public  services.  He  was  born  in  Bavaria  in  the  year 
1829,  and  was  a  banker  by  trade.  He  was  elected  to  the  chamber 
of  commerce  at  its  reorganization  in  1869  and  became  its  chairman 
in  1873,  in  which  capacity  he  served  until  his  death  on  April  24, 
1906.  Since  1886  he  had  been  a  member  of  the  general  committee 
(Ausschuss)  and  since  1901  of  the  executive  committee  (V  or  stand) 
of  the  German  Handelstag.  He  was  also  chairman  of  the  special 
committee  on  commerce  of  the  same  organization.  He  had  also 
been  a  member  of  the  advisory  council  to  the  Bavarian  state  rail- 
roads (Eisenbahnbeirai)  since  1877,  and  a  member  of  the  permanent 
German  railroad  tariff  commission  since  1876.  None  of  these  po- 
sitions was  solely  an  honorary  distinction.  They  all  entailed  hard 
work  and  made  heavy  demands  upon  his  time  and  business  capac- 
ity. There  are  many  men  in  Germany  like  Kommerzienrat  von 
Weidert,  and  it  is  to  them  in  no  small  measure  that  the  success 
of  German  methods  of  business  organization,  with  a  view  to  the 
cooperation  of  consumers. in  the  work  of  administration,  must  be 
ascribed. 

1  HGK  Oberbayern,  1906. 


CHAPTER  IV 

THE   DEVELOPMENT  OF   THE  TELEPHONE  BUSINESS   BY  THE   TELE- 
GRAPH AUTHORITIES:  WORKING  OF  THE  MACHINERY 

WHAT,  now,  is  the  working  of  this  machinery  for  the  conduct  of 
public  business  undertakings  and  for  the  representation  of  eco- 
nomic interests?  The  simplest  way  of  observing  it  is  to  examine  a 
series  of  reports  of  chambers  of  commerce  and  discover  what  criti- 
cisms they  have  to  make  concerning  the  administration  of  the 
public  business  in  their  respective  districts.  As  it  is  the  telephone 
service  in  particular  in  which  we  are  interested,  we  shall  confine 
our  inquiry  to  that  branch  of  the  public  activity. 

In  Bavaria,  after  the  establishment  of  local  exchanges  in  the 
cities  of  the  foremost  commercial  importance,  the  demand  for  ad- 
ditional telephone  facilities  took  the  direction,  not  of  the  further 
establishment  of  exchanges  in  smaller  cities  and  in  country  vil- 
lages, but  of  the  extension  of  long-distance  service.  In  1889  the 
Chamber  of  Commerce  at  Munich  reports  the  receipt  of  a  letter 
from  the  Chamber  at  Ulm,  urging  the  cooperation  of  the  Munich 
Chamber  in  order  to  secure  an  extension  of  the  long-distance  line 
already  running  from  Munich  to  Augsburg,  on  to  Ulm.1  The 
Chamber  at  Munich  gladly  indorsed  this  request  and,  at  the  same 
time,  added  one  of  its  own  for  the  establishment  of  long-distance 
connection  with  Frankfort-on-the-Main  by  way  of  Nuremberg.  In 
the  report  of  the  Chamber  at  Nuremberg  for  the  same  year,  pre- 
cisely the  same  requests  appear,  with  the  emphasis,  as  one  would 
expect,  laid  on Ihe  last.2  This  report  also  refers  to  the  receipt  of  a 
request  from  the  Chamber  at  Frankfort,  asking  for  information 
in  regard  to  the  demand  at  Nuremberg  for  long-distance  communi- 
cation with  Frankfort.  The  Chamber  at  Nuremberg  reports  that 
after  inquiry  fourteen  firms  had  already  pledged  themselves  to  use 
such  a  line  if  built,  and  others  would  undoubtedly  follow.  Finally, 

1  HGK  Oberbayern,  1889,  p.  127.          *  HGK  Mittelfranken,  1889,  p.  35. 


50  PUBLIC  OWNERSHIP  OF  TELEPHONES 

in  the  report  of  the  Chamber  having  its  seat  at  Augsburg  the  same 
requests  once  more  appear.1 

:  Turning  to  the  report  of  the  Chamber  at  Stuttgart  for  1890,  we 
find  that  the  Wurtemberg  authorities  had  already  constructed  a 
line  from  Stuttgart  to  Ulm,  and  were  only  awaiting  the  completion 
of  the  section  from  Ulm  to  Augsburg  by  the  Bavarian  authorities, 
to  open  direct  long-distance  connection  between  Stuttgart  and 
Munich.2  At  the  same  time  the  Stuttgart  report  noted  the  receipt 
of  a  request  from  the  Chamber  at  Frankfort  asking  for  information 
in  regard  to  the  demand  at  Stuttgart  for  long-distance  connection 
with  Frankfort.  The  Chamber  at  Frankfort  sent  word  that  the 
imperial  telephone  authorities  required  a  guarantee  of  receipts 
amounting  to  8,000  marks  per  year  at  the  rate  of  i  mark  per 
message  before  they  would  construct  their  share  of  the  long- 
distance line  between  the  two  cities,  and  that  6,000  marks  had 
already  been  pledged  at  Frankfort.  The  Chamber  at  Stuttgart  at 
once  turned  to  the  local  stockbrokers'  association  (Borsenverein) 
and  the  latter  quickly  raised  pledges  amounting  to  4,000  marks, 
the  sum  required  by  the  Wurtemberg  administration  as  the  re- 
quirement for  the  construction  of  its  portion  of  the  proposed  line. 
The  Chamber  at  Stuttgart  then  replied  to  Frankfort  that  a  local 
need  for  the  proposed  line  was  found  to  exist  and  that  the  Wur- 
temberg authorities  were  prepared  to  satisfy  the  need. 

The  extracts  from  the  reports  quoted  above  suffice  to  show  the 
methods  employed  by  the  chambers  to  secure  the  facilities  they 
wanted.  By  correspondence  among  themselves  they  were  able  to 
bring  concerted  pressure  to  bear  upon  the  telephone  authorities  at 
the  same  time  that  they  displayed  the  evidence  of  the  existence  of 
a  want.  The  telephone  authorities,  on  their  side,  protected  them- 
selves against  unreasonable  demands  by  the  requirement  of  a 
guaranteed  minimum  income  from  each  separate  facility  supplied. 
If  there  were  no  such  safeguard  the  administration  would  be 
swamped  with  demands  for  service  sent  in  by  over-sanguine  and 
irresponsible  persons.  It  could  not  meet  them  all  at  once,  and  it 
would  have  no  means  of  sifting  the  well  founded  from  the  capri- 

1  HGK  Schwaben  und  Neuburg,  1889,  p.  40.  • 

2  HGK  Stuttgart,  1890,  pp.  53-54. 


WORKING  OF  THE  MACHINERY  51 

cious  demands.  The  purpose  of  the  guarantee  should  be  simply  to 
make  certain  that  demands  for  service  were  founded  on  a  genuine 
want.  But  it  would  be  a  mistaken  policy  to  shift  all  the  risks  of 
extensions  to  the  shoulders  of  the  users.  It  is  a  part  of  the  function 
of  business  management  to  bear  these  risks;  it  should  not  endeavor 
to  shift  them,  but  only  to  reduce  them  to  a  minimum  by  any  means 
that  makes  more  certain  the  accurate  adjustment  of  supply  to 
demand.  If  the  requirement  of  a  moderate  guarantee  will  do  this, 
it  is  a  commendable  administrative  device.  In  short,  the  system 
is  a  justifiable  one  and,  provided  the  requirements  are  not  set  too 
high,  should  work  well. 

In  Bavaria  and  Wurtemberg  there  was  never  the  least  complaint 
on  this  score.  By  searching  the  annual  reports  succeeding  those  in 
which  were  made  the  requests  previously  quoted,  the  results  of  the 
requests  can  be  discovered.  The  request  for  a  line 'between  Augs- 
burg and  Ulm  to  complete  the  Munich-Stuttgart  circuit  is  not 
repeated.  In  the  report  of  the  Chamber  at  Munich  for  1892, 
there  is  an  allusion  to  the  line  which  shows  it  to  be  already  in 
operation.1  The  report  for  the  following  year  contains  a  refer- 
ence to  the  line  running  through  Nuremberg  to  Frankfort.  There 
had  been  no  repetition  of  the  original  request  for  that  line.  Hence, 
we  may  infer  that  it  also  was  constructed  by  the  telephone  authori- 
ties with  satisfactory  despatch.  In  the  same  year,  however,  there 
is  a  record  of  the  failure  to  secure  a  long-distance  line  to  Berlin  by 
way  of  Leipsic.2  The  Bavarian  authorities  built  the  line  from 
Bavaria  to  the  frontier,  but  there  it  stopped.  The  imperial  tele- 
phone authorities  declined  to  assume  the  risk  of  constructing  their 
part  of  the  line.  The  Munich  Chamber  took  the  occasion  to  ex- 
press its  appreciation  of  the  readiness  of  the  Bavarian  authorities 
to  respond  to  the  wishes  of  the  public. 

Turning  to  the  reports  of  the  Stuttgart  Chamber  we  find  the 
same  satisfaction  with  the  Wurtemberg  telephone  administration. 
The  methods  of  the  imperial  authorities,  however,  gave  rise  to  a 
complaint.  The  desired  long-distance  connection  with  Frankfort, 
although  approved  by  the  former,  had  been  rejected  by  the  latter.8 

1  HGK  Oberbayern,  1892,  p.  94.  *  HGK  Stuttgart,  1891,  p.  41. 

«  Ibid.,  1893,  P.  86. 


52  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  ground  for  their  refusal  to  install  the  line  was  that  there  was  no 
general  need  for  it,  only  a  special  need  confined  to  certain  limited 
circles.  The  Stuttgart  Chamber  was  somewhat  irritated  because 
this  was  not  the  first  time  that  the  imperial  authorities  had  been 
less  responsive  to  requests  for  new  construction  than  their  own 
Wurtemberg  authorities  had  been.  In  1888  the  city  of  Gmiind,  in 
which  an  exchange  service  had  just  been  established,  desired  a 
toll  connection  with  the  neighboring  city  of  Pforzheim  in  Baden, 
which  forms  part  of  the  imperial  postal  area. l  The  imperial  author- 
ities demanded  a  guarantee  of  2,000  messages  per  annum  at  i 
mark  each.  At  the  same  time  the  Wurtemberg  authorities  offered 
to  install  a  longer  line  to  connect  Gmiind  with  Stuttgart  at  a 
cheaper  message  rate  and  without  requiring  any  guarantee.  The 
latter  connection  was,  of  course,  made.  Then  the  imperial  au- 
thorities reduced  their  requirement  by  half.  This  more  moderate 
guarantee  the  commercial  interests  of  Gmiind  felt  able  to  under- 
take. The  impression  remains,  however,  that  the  imperial  authori- 
ties were  setting  their  requirements  too  high. 

In  the  year  1890  an  examination  of  all  the  current  reports  of 
chambers  of  commerce  was  made  with  a  view  to  ascertaining  the 
general  feeling  in  regard  to  the  policy  of  the  imperial  telephone 
administration.2  Out  of  112  reports  examined,  80  dealt  specifically 
with  the  telephone.  All  sorts  of  complaints  and  suggestions  for 
improving  the  service  were  of  course  found.  The  predominant 
cause  for  discontent,  however,  was  the  difficulty  in  securing  long- 
distance lines.  Not  all  of  the  complaints  in  this  regard  were  well 
founded.  Van  der  Borght  reports  that  it  was  not  surprising  that 
many  of  the  proposals  for  extensions  or  for  new  lines  were  not 
accepted.  Still  the  fact  remained,  according  to  Van  der  Borght, 
that  in  almost  all  cases  requirements  were  imposed  by  the  tele- 
phone authorities  which  could  be  explained  only  by  a  fundamental 
repugnance  towards  a  rapidly  increasing  utilization  of  the  tele- 
phone for  long-distance  communications.  The  petitioners  for  new 

1  HGK  Stuttgart,  1888,  p.  69. 

2  R.  van  der  Borght:  "Die  Tatigkeit  der  deutschen  Handelskammern  in  Bezug 
auf  das  Fernsprechwesen  im  Jahre  1889."    Jahrbuch  filr  National-Oekonomie  und 
Statistik,  vol.  56  (1890),  pp.  412-24. 


WORKING  OF  THE  MACHINERY  53 

lines  were  required  to  guarantee  that  the  annual  receipts  from  the 
operation  of  the  desired  lines  should  not  be  less  than  a  stipulated 
sum  during  a  certain  period  after  the  establishment  of  the  lines,  - 
usually  five  years. 

In  many  cases  these  guarantees  could  not  be  provided  because 
the  sum  was  too  high  in  comparison  with  the  business  in  sight. 
But  when  the  guarantees  were  declined  the  telephone  authorities 
decided  that  there  was  no  general  need  for  the  desired  facility. 
Occasionally  other  conditions  were  attached  which  made  the  ac- 
ceptance of  the  guarantee  even  more  difficult.  Thus  when  the 
city  of  Siegan  wished  to  be  connected  with  the  Rhenish  Westpha- 
lian  territorial  telephone  system,  it  was  required  not  only  to 
guarantee  an  income  of  15,000  marks  for  five  years  from  the 
operation  of  the  connecting  line,  but  also  to  make  a  considerable 
contribution  to  the  cost  of  construction.  These  conditions  were 
declined  by  the  local  chamber  of  commerce  on  the  ground  that  they 
were  too  onerous.  Such,  indeed,  in  the  opinion  of  the  local  inter- 
ests, was  not  infrequently  the  nature  of  the  conditions  imposed  by 
the  telephone  authorities.  The  result  was  that  the  desired  facilities 
were  not  constructed. 

When  remonstrances  were  addressed  to  the  telephone  authorities 
by  the  representatives  of  the  interests  affected,  the  reply  was  that 
for  purposes  of  long-distance  communication,  not  the  telephone 
but  the  telegraph  was  primarily  to  be  employed.  Only  where  the 
telegraph  service  was  no  longer  adequate  to  the  demands  made 
upon  it  should  additional  facilities  be  provided  in  the  shape  of  a 
long-distance  telephone  service.1  This  attitude  towards  the  long- 
distance telephone  seemed  a  hardship  to  the  chambers  of  com- 
merce. Prompted  by  fear  lest  the  revenues  from  the  telegraph 
should  be  diminished  by  the  competition  of  the  telephone,  the  pub- 
lic authorities,  instead  of  building  telephone  lines  at  their  own  risk 
or  subsidizing  private  enterprise  to  take  the  risk  for  them,  as  was 
the  practice  in  some  enterprises,  were  requiring  private  enterprise 
to  subsidize  the  government.  Such  was  the  burden  of  the  com- 
plaint of  the  chambers  of  commerce  as  summed  up  by  Van  der 

1  Van  der  Borght,  p.  423.  Quoted  from  a  letter  addressed  to  the  Chamber  of 
Commerce  at  Frankfort,  May  12,  1890,  by  the  imperial  telegraph  authorities. 


54  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Borght.  Both  the  Chamber  at  Frankfort  and  that  at  Dresden 
complained  that  had  private  enterprise  been  allowed  free  play  in 
the  telephone  business,  a  more  rapid  development  would  have 
taken  place  in  Germany. 

These  complaints  should  be  read  between  the  lines;  taken  lit- 
erally, they  are  calculated  to  convey  a  false  impression.  Under 
the  German  system  of  governmental  business  management,  the 
interests  of  consumers  are  intended  to  be  safeguarded  by  the  or- 
ganization of  public  criticism.  In  their  annual  reports  and  at  their 
annual  conventions,  chambers  of  commerce,  professional  associa- 
tions, agricultural  societies,  and  other  organs  of  public  opinion,  are 
expected  to  make  known  to  the  public  authorities  not  only  their 
unsatisfied  wants  but  also  any  grounds  for  discontent  with  the  ad- 
ministration of  public  affairs.  Such  criticism  is  expected  to  be, 
and  usually  is,  well  considered  and  temperate.  The  organization 
of  public  criticism  should  do  away  with  the  license  and  abuse  that 
so  often  accompany  irresponsible  criticism  of  public  authorities. 
On  the  other  hand  it  should  safeguard  the  liberty  of  a  strong  and 
vigorous  expression  of  opinion.  When  a  chamber  of  commerce 
fails  to  obtain  an  extension  of  telephone  facilities  to  which  it 
believes  itself  to  be  entitled,  its  duty  is  to  register  a  vigorous 
complaint.  That  is  the  legitimate  procedure  for  the  promotion  of 
local  interests.  Where  a  number  of  chambers  of  commerce  find 
their  plans  for  local  improvements  along  a  certain  line  balked 
by  the  refusal  of  the  public  authorities  to  accede  to  their  re- 
quests, they  are  bound  to  make  common  cause  with  one  another. 
That  incidentally  thereto  they  should  exaggerate  the  extent  of 
their  grievance  is  simply  an  ordinary  manifestation  of  human 
nature. 

In  fact,  the  requirement  of  guarantees  by  the  telephone  authori- 
ties did  not  prevent  the  construction  of  as  many  really  necessary 
long-distance  telephone  lines  as  might  be  supposed  from  the 
amount  of  complaint.  Out  of  thirty-two  toll  lines,  for  which  at 
this  time  guarantees  were  demanded  and  accepted,  in  only  thirteen 
cases  were  the  guarantors  required  to  make  up  a  deficiency.  All 
of  these  lines  were  of  secondary  or  purely  local  interest.  In  no 
case  did  the  telephone  authorities  demand  more  than  was  actually 


WORKING  OF  THE  MACHINERY  55 

earned  from  an  important  long-distance  connection.1  It  is  not 
unreasonable  to  suppose  that  local  authorities  were  inclined  to  be 
unduly  optimistic  when  it  was  a  question  of  predicting  the  need 
for  additional  service.  Indeed,  since  there  was  no  other  way  of 
securing  additional  service  than  by  applying  for  it,  not  to  have 
preferred  to  err  in  the  direction  of  excessive  optimism  would 
have  been  a  mistaken  policy. 

Yet  where  there  was  so  much  smoke,  there  must  have  been  some 
fire.  The  telephone  was  able  to  cause  considerable  damage  to  the 
public  investment  in  telegraphs.  There  can  be  no  doubt  that  the 
effect  of  the  competition  of  the  long-distance  telephone  with  the 
telegraph  was  to  take  away  business,  at  first  from  lines  connecting 
neighboring  cities,  and  then,  as  the  long-distance  telephone  service 
developed,  from  those  connecting  places  that  were  more  remote. 
Thus,  the  internal  telegraph  traffic  began  to  show  the  effects  of 
competition  during  the  eighties  in  small  countries  like  Belgium, 
Holland,  and  Switzerland,  and  in  larger  countries  the  telegraph 
business  was  driven  to  cover  under  the  protection  of  the  greater 
distances.  Thus,  in  the  imperial  postal  area,  the  number  of  in- 
ternal telegrams  has  regularly  increased,  except  for  a  slight  relapse 
during  the  industrial  depression  of  1901-1902,  but  in  the  Bavarian 
and  Wurtemberg  services,  the  domestic  telegraph  business  has  been 
unable  to  hold  its  own.  The  number  of  paid  domestic  telegrams  in 
Wurtemberg  in  1880  was  233,000;  it  reached  the  maximum  in  1898 
at  325,000;  and  declined  in  1906  to  191,000.  The  loss,  however, 
was  more  than  compensated  for  by  the  growth  of  the  external  and 
transit  traffic.  In  Bavaria  the  same  condition  exists.  If  the  tele- 
phone lines  are  made  available  as  fast  as  demanded,  regardless  of 
the  disuse  of  the  existing  telegraphs,  the  effect  will  be  the  destruc- 
tion of  a  part  of  the  utility  of  the  telegraph  plant,  and  a  reduction 
of  the  value  of  the  government's  investment  in  that  undertaking. 
Consequently  the  public  authorities  have  had  a  strong  incentive 
to  substitute  the  long-distance  telephone  for  the  telegraph  no  more 
rapidly  than  is  required  in  the  ordinary  course  of  maintenance  or 
extension  of  the  original  plant. 

1  Drucksachen  des  Reichstagcs,  Session  1889-90;  6.  Anlageband,  Nr.  676,  appen- 
dices 5  and  6. 


56  PUBLIC  OWNERSHIP  OF  TELEPHONES 

They  may  do  this  in  either  of  two  ways:  they  may  refuse  to  in- 
troduce the  alternative  service  more  rapidly  than  is  necessary  to 
keep  pace  with  the  growth  of  the  total  demand  for  the  service  under 
consideration;  or  they  may  introduce  the  alternative  service  as 
rapidly  as  that  particular  kind  of  service  is  demanded  and  charge 
a  price  for  it  sufficiently  high  to  compensate  them  for  the  deprecia- 
tion of  the  older  investment.  In  the  former  case  the  superior  ser- 
vice comes  into  use  more  slowly;  in  the  latter,  the  consumer  pays 
extra  in  order  to  have  it  available  at  once;  in  either  case,  the  public 
investment  is  protected  against  loss.  Under  a  regime  of  private 
enterprise,  theoretically  the  competition  between  the  older  and 
the  newer  service  will  automatically  assign  to  each  its  proper 
share  of  the  public  patronage.  Any  losses  will  be  borne  not  by  the 
consumer  but  by  the  owner  of  the  service  which  falls  into  disfavor. 
In  practice  this  result  is  liable  to  be  forestalled  by  mutual  agree- 
ment between  the  owners  of  the  rival  services.  In  so  far  as  the 
services  concerned  can  only  be  rendered  advantageously  to  the 
public  on  so  large  a  scale  as  to  render  the  freedom  of  competition 
illusory,  such  mutual  agreement  is  not  only  liable,  but  very  likely, 
to  occur.  In  that  event  a  condition  is  produced  in  no  wise  different 
from  that  under  public  ownership.  The  problem  at  once  arises 
how  to  provide  a  substitute  for  competition  in  order  to  produce 
the  maximum  of  public  satisfaction.  The  solution  must  lie  be- 
tween private  ownership  under  regulation  and  public  ownership 
combined  with  administrative  organization. 
*  This  is  a  matter  that  must  be  considered  in  the  final  summing 
up  of  the  advantages  and  disadvantages  of  public  as  compared 
with  private  ownership  of  monopolistic  business  undertakings.  It 
should  be  observed,  however,  that  the  attitude  of  the  telegraph 
authorities  was  not  arbitrary  or  capricious,  but  based  on  definite 
principles  of  public  policy  which  they  did  not  hesitate  to  avow. 

This  policy  was  harshly  criticised  at  the  time  by  Van  der  Borght. 
Again  in  his  book  on  transportation,  published  a  few  years  later, 
he  denounced  it  as  based  on  an  unsound  theory  of  finance.1  After 
another  dozen  years,  however,  he  had  modified  his  opinion.  In  his 
article  on  telephones  in  Elster's  Worterbuch  he  observes:  "The 
1  R.  Van  der  Borght:  Das  Verkehrswcsen,  1894,  pp.  392~94. 


WORKING  OF  THE  MACHINERY  57 

demand  that  special  interests  should  guarantee  a  minimum  in- 
come, or  furnish  contributions  to  the  costs  of  construction,  is, 
under  certain  conditions,  unavoidable."  l  As  a  matter  of  fact,  the 
imperial  telephone  authorities  seem  to  have  adhered  to  their  policy 
of  introducing  the  long-distance  telephone  service  on  the  basis  of 
local  guarantees  until  all  the  main  telegraph  lines  had  been  par- 
alleled by  the  long-distance  telephone.  Thereafter  the  question 
of  competition  between  the  two  could  no  longer  arise  in  the  old 
form,  for  no  attempt  would  be  made  to  compel  users  of  an  over- 
loaded telephone  line  to  go  back  to  the  use  of  the  telegraph.  Fur- 
ther increases  of  facilities  for  long-distance  communication  were 
made  in  whichever  shape,  telegraph  or  long-distance  telephone, 
was  desired  by  the  prospective  users  of  the  service.2  Thus,  in 
consequence  of  the  natural  growth  of  the  service,  criticism  of  the 
administration's  policy  of  extensions  was  completely  disarmed. 

Turning  to  a  number  of  the  recent  reports  chosen  purely  at  ran- 
dom, we  find  no  dissatisfaction  with  the  methods  of  the  imperial 
telephone  authorities  in  ascertaining  and  satisfying  the  need  for 
increased  long-distance  telephone  facilities.  In  1900  the  Chamber 
at  Stuttgart  noted  the  receipt  of  a  communication  from  the  Cham- 
ber at  Wiesbaden  urging  its  cooperation  in  supporting  its  proposal 
for  direct  long-distance  connection  by  telephone  between  the  two 
cities.  To  the  Chamber  at  Stuttgart,  however,  it  seemed  ques- 
tionable whether  there  was  sufficient  demand  for  such  a  service  in 
Stuttgart,  and  it  replied  to  the  communication  to  that  effect. 
Nevertheless,  Wiesbaden  felt  a  need  for  the  service,  and  a  line 
was  constructed  by  the  imperial  telephone  authorities  during  the 
course  of  the  year.3 

The  Chamber  at  Mannheim,  in  its  report  for  1906,*  expresses 
its  pleasure  at  the  increase  of  long-distance  facilities  during  the 
preceding  year,  and  sets  forth  its  request  for  extensions  of  service 

1  Worterbuch  der  Volkswirtschaft,  2d  edit.,  1906;  Art.,  "Das  Fernsprechwesen." 
9  HGK  Stuttgart,  1895,  p.  150.  The  report  quotes  from  Stephan's  speech  at  the 
annual  meeting  of  the  Elektrotechnischer  Verein  in  the  fall  of  1894,  in  which  he  de- 
clared that  the  further  extension  of  the  long-distance  telephone  system  would  not  be 
retarded  in  the  interest  of  the  telegraphs.   The  Stuttgart-Frankfort  line  was  con- 
structed during  the  course  of  the  same  year. 
1  HGK  Stuttgart,  1900,  p.  43 .  4  Part  I,  p.  356. 


58  PUBLIC  OWNERSHIP  OF  TELEPHONES 

during  the  coming  year  in  a  calm  and  business-like  manner.  The 
Chamber  at  Dresden,  in  its  report  for  1903,*  touches  on  the  tele- 
phone service,  but  has  no  complaints  to  make.  In  the  following 
year,2  there  is  still  no  complaint  of  inadequate  or  inefficient  ser- 
vice, but  on  the  contrary  the  tone  of  the  report  is  one  of  complete 
satisfaction  with  the  methods  of  the  telephone  authorities. 

The  Chamber  at  Bremen  reports  in  1901 3  that  the  telephone 
service  is  generally  satisfactory  and  that  the  management  displays 
a  gratifying  desire  to  meet  the  wants  of  the  city.  The  report  adds 
that  a  direct  long-distance  line  to  Leipzig  in  place  of  the  existing 
indirect  connection  would  be  much  appreciated.  The  report  for 
the  following  year 4  notes  that  the  construction  of  a  direct  line  to 
Leipzig  has  been  approved,  but  that  of  one  to  Antwerp  has  been 
declined.  In  the  annual  report  for  I9O35  the  Bremen  Chamber 
remarks:  "  During  the  past  year  the  Chamber  has  attempted  to 
secure  the  improvement  of  the  telegraph  and  telephone  con- 
nections with  a  number  of  foreign  commercial  centers  (referring 
especially  to  Antwerp  and  Rotterdam).  The  Chamber  has  always 
met  with  a  most  gratifying  responsiveness  on  the  part  of  the  im- 
perial postal  authorities,  to  whom  we  take  this  occasion  to  express 
our  sincere  thanks."  In  1904*  the  report  of  the  Chamber  echoed 
the  same  sentiments,  chronicled  the  increase  of  facilities  that  had 
been  made  during  the  year,  and  expressed  its  desire  for  more. 

As  an  illustration  of  the  cooperation  between  the  telephone 
authorities  and  the  local  interests,  the  following  notice  from  the 
report  of  the  Chamber  at  Munich  for  1905  7  may  be  cited:  "On 
the  6th  October  the  royal  postal  authorities  for  the  district  sent 
us  a  request  asking  in  what  places  a  need  existed  for  the  opening 
of  telephonic  communication  with  Switzerland."  The  Chamber 
took  pains  to  send  back  a  thoroughly  reliable  reply.  Earlier  in 
the  same  year  a  similar  request  was  made  for  information  con- 
cerning new  facilities  that  were  desired  for  communication  be- 
tween Munich  and  the  grand  duchy  of  Hessen.  The  Chamber 

i  Part  I,  p.  54.  '  P.  87. 

»  Part  I,  p.  45.  8  Pp.  84-89. 

*  P.  76.  7  P.  96. 
4  P.  80. 


WORKING  OF  THE  MACHINERY  59 

replied  that  it  could  not  point  to  the  existence  of  any  need,  but 
would,  of  course,  welcome  any  new  lines. 

In  a  few  places  the  reports  breathe  a  slight  spirit  of  impatience 
at  the  delays  in  making  additional  facilities  available.  Thus  Essen, 
the  center  of  the  great  Rhenish  Westphalian  coal  district  and  the 
seat  of  the  main  Krupp  steel  works,  reports  in  1904 l  a  gratifying 
increase  in  telephone  facilities  during  the  year,  but  is  obliged  to 
reiterate  a  previous  request  for  a  better  service  with  Hamburg. 
In  1905 2  the  Chamber  complained  that  the  service  with  Hamburg 
had  not  been  sufficiently  improved  and  that  the  entire  toll  service 
throughout  the  coal  district  was  overburdened.  The  Chamber 
recognized  the  attempts  the  telephone  authorities  had  made  to 
relieve  the  congestion,  but  insisted  that  a  more  vigorous  creation 
of  new  lines  was  indispensable  in  order  to  keep  pace  with  the  rap- 
idly extending  demands  for  telephone  toll  service.  In  1906  3  the 
report  chronicles  the  opening  of  fresh  lines  and  expresses  the  hope 
that  the  previous  congestion  will  be  relieved  by  the  increased  rate 
of  fresh  construction  during  the  preceding  year.  The  only  positive 
request  is  for  more  lines  to  connect  with  Rotterdam.  On  the  whole 
the  report  still  smacks  a  bit  of  impatience.  The  reports  of  Kre- 
feld,  however,  a  city  on  the  edge  of  the  same  district,  and  the  center 
of  the  silk  manufacture,  for  the  years  1901-1904  are  characterized 
by  an  unruffled  spirit  of  contentment  with  the  conduct  of  affairs 
by  the  telephone  authorities.  In  Hanover  4  the  long-distance  lines 
towards  the  west,  that  is,  towards  the  Rhenish  Westphalian  coal 
district,  were  also  reported  at  this  juncture  to  be  overcrowded, 
to  the  annoyance  of  business  men.  The  telephone  authorities 
replied  that  the  cause  of  the  trouble  was  the  enormous  and  wholly 
unanticipated  increase  of  long-distance  telephone  traffic  in  the  last 
few  years  in  that  district,  which  had  wholly  outstripped  the  pro- 
vision made  in  advance.  The  authorities  promised  to  install  a  new 
line  to  Essen  at  once,  although  not  provided  for  in  the  budget,  and 
although  a  new  line  to  Elberfeld  had  already  been  constructed  in 
that  same  year.  A  delegation  from  the  Chamber  visited  the  local 
exchange  in  order  to  see  what  was  the  foundation  for  the  com- 

1  Part  I,  pp.  33-35.  »  Part  I,  pp.  42-43. 

*  Part  I,  p.  44.  4  HGK  Hanover,  1905,  p.  68. 


60  PUBLIC  OWNERSHIP  OF  TELEPHONES 

plaints  of  poor  service  that  were  made  by  business  men  and,  after 
a  courteous  reception  by  the  local  officials,  reported  themselves  as 
entirely  satisfied  with  the  methods  of  conducting  the  business.  So 
we  might  go  on.  In  no  case  do  the  reports  condemn  the  methods  of 
the  imperial  telephone  authorities,  or  so  much  as  hint  at  a  wish  for 
the  surrender  of  the  telephone  business  to  private  enterprise. 

The  policy  of  the  German  telephone  authorities  with  regard  to 
the  establishment  of  new  exchanges  never  gave  rise  to  the  same 
difficulties  as  occurred  in  the  case  of  the  long-distance  lines.  The 
experience  gained  from  the  first  year's  operation  of  the  earliest 
exchanges  seemed  at  the  time  to  show  that  an  independent  ex- 
change system  would  pay  its  way  at  the  existing  level  of  rates,  pro- 
vided that  thirty-six  subscribers  were  connected.1  But  the  experi- 
ence of  a  very  few  more  years  of  operation  showed  that  the  certain 
increase  of  the  exchange  systems  warranted  their  establishment 
with  a  much  smaller  number  of  subscribers.  Hence,  during  the 
first  decade  after  the  introduction  of  the  telephone,  the  policy 
of  constructing  new  exchanges,  first,  in  the  important  commer- 
cial centers,  and  then  in  those  of  more  modest  pretensions,  was 
vigorously  pressed  by  the  German  telephone  administration.  In 
the  next  decade  this  activity  was  extended  from  the  medium-sized 
to  the  smaller  sort  of  cities.  In  general,  the  question  of  establishing 
a  new  exchange  when  desired  by  the  local  business  interests  gave 
no  trouble. 

In  Bavaria,  at  this  period  in  the  development  of  the  industry, 
the  telephone  authorities  seem  usually  to  have  required  that  ten 
persons  should  signify  their  intention  of  joining  the  system  before 
the  government  would  assume  the  responsibility  for  the  under- 
taking. In  1897  the  small  rural  city  of  Weissenburg  applied  for  the 
establishment  of  an  exchange  and  was  refused  on  the  ground  that 
it  was  not  possible  to  secure  ten  subscribers  to  the  proposed  ser- 
vice.2 There  were  only  six  persons  who  desired  to  be  connected. 
The  chamber  of  commerce  for  the  district  urged  the  telephone 
authorities  to  reconsider  their  decision,  especially  as  there  was  a 
demand  for  long-distance  service  between  Weissenburg  and  the 
commercial  center  of  that  district,  Nuremburg.  This  request  ap- 
1  HGK  Stuttgart,  1881,  p.  85.  f  HGK  Mittelfranken,  1897,  p.  38. 


WORKING  OF  THE  MACHINERY  6l 

pears  to  have  been  complied  with  at  once,  for  it  is  not  repeated  in 
the  report  for  the  following  year.  The  later  policy  of  Bavaria  in 
this  respect  has  been  to  construct  rural  toll  lines  and  set  up  switch- 
boards at  their  terminals,  whenever  such  installations  were  applied 
for.  Any  rural  village  authority  which  considered  that  it  was  un- 
justly treated,  could  of  course  secure  a  private  line,  like  any  pri- 
vate persons.  There  is  no  evidence,  however,  that  the  judgment  of 
the  telephone  administration  has  ever  been  seriously  challenged 
during  the  last  decade. 

In  the  year  1900,  the  average  number  of  persons  connected  with 
exchanges  in  places  in  the  imperial  telephone  area  having  less 
than  2,000  inhabitants  was  six.1  Indeed,  the  energetic  use  of  the 
telephone  as  a  substitute  for  the  telegraph  in  order  to  connect 
outlying  villages  with  the  general  telegraph  system  of  the  empire, 
anticipated  the  local  demand  of  the  rural  communities  for  a  special 
telephone  service.  When  that  demand  later  arose  it  did  not  mani- 
fest itself  at  first  in  the  form  of  a  general  desire  for  local  exchange 
service,  but  in  that  of  a  special  desire  for  private  connections  with 
the  long-distance  service.  Hence  it  was  easy  to  readjust  the 
existing  facilities  to  the  altered  situation.  Scattered  individuals, 
such  as  big  landowners  and  the  managers  of  brick-yards  and  quar- 
ries arid  other  concerns  of  a  similar  sort,  first  began  to  feel  this 
need.  They  were  able  to  satisfy  it  by  erecting  a  private  wire  be- 
tween their  residence  or  place  of  business  and  the  nearest  telegraph 
station  or  branch  telephone  line.  As  soon  as  it  came  to  pass  that 
several  such  private  wires  converged  at  a  common  terminal,  the 
transition  to  an  exchange  was  a  simple  matter.  In  other  cases 
where  the  erection  of  a  number  of  such  private  wires  was  simul- 
taneously under  consideration,  the  conversion  of  the  project  into 
one  for  the  establishment  of  a  public  exchange  service  was  equally 
simple.  The  problem  was  one  not  of  administrative  policy  but  of 
rates. 

In  Wurtemberg  the  process  of  the  development  of  rural  tele- 
graph offices  operated  by  telephone  into  genuine  telephone  ex- 
changes may  be  clearly  traced.  In  1892  there  were  572  telegraph 
offices  in  Wurtemberg,  an  increase  of  50%  since  1880.  There  was 
1  Ergebnisse.R.  P.  T.,  1896-1900. 


62  PUBLIC  OWNERSHIP  OF  TELEPHONES 

one  office  for  each  12^  square  miles  of  territory  and  one  for  each 
3,560  inhabitants.  Of  these  179  were  operated  by  telephone.  At 
the  same  time,  there  were  eight  telephone  exchange  systems  in 
operation,  with  which  25  public  call  offices  were  connected,  situ- 
ated partly  within  the  urban  limits  and  partly  within  neighboring 
villages.  Two  thirds  of  the  number  of  telephone  stations  actually 
in  use  were  in  Stuttgart  itself.1  The  year  before,  a  number  of  the 
rural  telegraph  offices  operated  by  telephone  were  experimentally 
opened  to  the  direct  use  of  the  public,  in  order  that  the  country 
villagers  might  consult  with  their  physicians  in  the  next  large 
town  and  deliver  important  messages  of  all  sorts'  more  easily  than 
by  ordinary  telephonic  telegraphs.2  This  arrangement  proved 
satisfactory  and  was  extended.  The  next  step  was  to  permit  any 
villager  who  had  a  special  need  for  such  toll  communications  to  con- 
nect himself  with  any  telegraph  office  operated  by  telephone  by  a 
special  wire,  in  order  to  have  more  convenient  access  to  the  toll 
line  and  at  the  same  time  to  enjoy  unlimited  communication  with 
all  others  similarly  connected  to  the  same  terminal  at  the  ordinary 
flat  rate.  This  practice  was  officially  regulated  in  1 899.3  All  such 
offices  were  thereafter  to  be  connected  with  the  general  long-dis- 
tance telephone  system  of  the  kingdom.  In  1902  all  rural  tele- 
graph offices  operated  by  telephone  to  which  no  special  subscribers' 
lines  were  connected,  and  situated  within  five  kilometers  of  an  ex- 
change system,  were  declared  to  be  public  call  offices  in  connec- 
tion with  that  system.4  There  were  675  of  these  offices  at  that  time. 
A  year  later  the  total  number  of  telegraph  offices  in  Wurtemberg 
was  1,250,  of  which  862  were  equipped  only  with  telephone  instru- 
ments and  hence  had  been  transformed  into  public  call  offices  in 
connection  with  the  general  telephone  system  of  the  state.  Mes- 
sages, of  course,  could  be  delivered  from  these  stations  like  ordi- 
nary telegrams  as  well  as  be  received  for  transmission  elsewhere. 
In  1904  the  term  "  telegraph  office"  was  abolished  for  these  offices, 
and  they  became  thereafter  either  public  call  offices  or,  if  they  were 
the  terminals  of  special  subscribers'  lines,  exchanges.  In  the  fol- 

1  Verwaltungsbericht  (Wurtemberg),  1891-92,  p.  71. 

2  Ibid.,  1890-91,  p.  71.  4  Ibid.,  1901-02,  p.  78. 
1  Ibid.,  1898-99,  p.  84. 


WORKING  OF  THE  MACHINERY  63 

lowing  year,  of  1418  places  in  Wurtemberg  connected  with  the 
general  telephone  system,  413  possessed  exchange  offices  and 
1,005  call  offices.  Of  the  latter  982  were  combined  with  postal  or 
genuine  telegraph  offices.  There  was  practically  no  hamlet  so 
small  as  not  to  be  within  easy  telephonic  communication  with  all 
parts  of  the  land.  The  same  policy  has  been  pursued  in  Bavaria 
and  in  the  rest  of  Germany. 

This  expansion  of  the  service  in  the  rural  districts  provides 
admirably  for  the  greater  part  of  the  wants  of  the  rural  popula- 
tion. Their  primary  need  is  not  for  a  local  exchange  service, 
but  for  connection  with  the  nearest  city  and  with  the  outer  world 
in  general.  So  far  as  there  is  a  demand  for  a  local  exchange  service 
it  can  be  easily  supplied  by  building  upon  the  existing  basis.  The 
extent  to  which  this  secondary  demand  will  be  satisfied  is  thus 
reduced  to  a  question  of  rates.  The  exchange  service  in  the  rural 
communities,  however,  would  scarcely  be  worth  having  at  all, 
except  for  the  connections  with  the  neighboring  urban  exchanges, 
or,  as  it  is  usually  called  in  America,  the  toll  service.  The  central- 
ized management  of  the  telephone  business  in  Germany,  its  oper- 
ation on  a  large  scale  and  in  conjunction  with  the  general  postal 
and  telegraphic  business,  all  things  considered,  have  accomplished  .,. 
more  for  the  extension  of  the  telephone  service  into  the  rural  dis- 
tricts than  would  have  been  possible  under  any  system  of  private 
competition  or  purely  local  initiative. 

In  the  long  run,  so  far  as  concerns  the  quantitative  adjustment 
of  supply  to  demand,  the  German  system  of  a  special  representation 
of  economic  interests,  and  their  cooperation  with  the  public  author- 
ities in  the  management  of  business  undertakings,  has  worked  well. 
It  has  kept  the  public  authorities  in  close  touch  with  consumers. 
It  has  enabled  them  to  estimate  quickly  and  accurately  the  future 
demand  for  a  service  and  thus  has  enabled  them  to  maintain  an 
adequate  supply.  The  system  indeed  has  accomplished  more  than 
this.  It  has  furnished  a  recognized  vehicle  by  means  of  which 
originators  of  innovations  of  all  kinds  in  the  operation  of  public 
undertakings,  inventors  who  wish  to  secure  the  adoption  of  their 
devices,  promoters  who  desire  to  find  a  sale  for  their  products, 
ordinary  business  men  who  desire  to  make  suggestions  concerning 


64  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  conduct  of  public  affairs,  all  can  bring  their  ideas  to  the  notice, 
not  only  of  the  authorities,  but  also  of  those  interests  most  likely 
to  be  affected.  Thus  the  organizations  of  economic  interests  have 
an  educational  as  well  as  an  administrative  value.  To  this  agency 
the  German  public  trusts  not  only  to  get  what  it  wants,  but  also 
to  learn  what  it  ought  to  want.  The  organized  cooperation  of  the 
private  citizen  in  the  work  of  public  administration  is  in  Germany 
a  fundamental  principle  of  public  ownership.  It  is  a  principle  the 
operation  of  which  we  shall  proceed  to  trace  further. 


CHAPTER  V 

THE    DEVELOPMENT  OF  THE  TELEPHONE  BUSINESS  BY  THE  TELE- 
GRAPH AUTHORITIES:   TECHNICAL  PROGRESS 

A  COMMON  objection  to  the  public  ownership  of  business  under- 
takings is  that  such  ownership  tends  to  prevent  industrial  progress. 
Under  a  regime  of  free  competition,  the  desire  of  each  business 
man  to  secure  the  greatest  possible  profit  incites  him  to  introduce 
with  all  speed  new  kinds  of  tools  which  give  promise  of  enabling 
him  to  put  his  product  upon  the  market  more  cheaply  than  can  his 
rivals.  Under  a  regime  of  private  monopoly,  the  fear  of  competi- 
tors loses  its  force  as  a  motive  impelling  to  economy,  but  the  desire 
of  the  owners  of  the  monopoly  to  secure  the  greatest  possible 
profit  remains  unchanged.  Monopoly,  as  well  as  competitive, 
profits  can  be  most  easily  enhanced  by  the  introduction  of  im- 
provements that  cheapen  the  process  of  production. 

Under  a  regime  of  public  ownership,  however,  the  managers  of 
an  undertaking  have  no  pecuniary  interest  in  the  results  of  in- 
creased economy  of  operation.  The  benefits  of  improvements  in 
the  instruments  of  production  accrue  to  others.  To  be  sure,  most 
men  of  the  ability  to  conduct  the  operations  of  a  great  business 
undertaking  will  be  prompted  by  their  own  self-esteem,  and  by 
the  pleasure  which  any  good  workman,  whether  he  works  with  his 
hands  or  with  his  brain,  takes  in  doing  the  work  of  his  choice  as 
well  as  he  can,  to  manage  the  public  affairs  with  which  they  are 
intrusted  as  economically  and  as  efficiently  as  they  can.  Never- 
theless, this  motive  can  hardly  be  expected  to  lead  to  such  vigorous 
and  aggressive  conduct  as  is  produced  by  the  operation  of  the  more 
powerful  motive  of  self-interest.  The  desire  of  consumers  to  secure 
the  satisfaction  of  their  wants  as  cheaply  as  possible  must  be  util- 
ized in  some  way  to  fill  the  void  created  by  the  elimination  of  the 
self-interest  of  the  managers  of  the  undertaking.  Otherwise  the 
security  for  industrial  progress  afforded  by  that  motive  would 
appear  to  be  seriously  impaired. 


66  PUBLIC  OWNERSHIP  OF  TELEPHONES 

In  fact  we  find  that  industrial  improvements  are  made  under  a 
regime  of  public  ownership.  For  example,  the  technical  progress 
of  the  German  imperial  telephone  system  from  the  first  has  been 
continuous  and  important.  One  of  the  first  tasks  of  the  early  tele- 
phone engineers  was  to  devise  a  satisfactory  calling  apparatus. 
The  style  originally  employed  in  Germany  seems  to  have  been  a 
sort  of  mechanical  whistle  attached  to  the  telephone  instrument. 
In  1885  these  were  replaced  by  electrical  call  signals  actuated  by 
chemical  batteries  of  the  so-called  wet  variety,  one  for  each  calling 
apparatus.  In  1891  these  in  turn  began  to  be  replaced  by  dry 
batteries.1  Soon,  however,  these  local  batteries  gave  way  for  call- 
ing purposes  to  the  magneto.  The  change  was  completed  in  Ber- 
lin, Hamburg,  and  Cologne  in  1895,  and  within  a  few  years  in  all 
the  leading  commercial  centers.2  Finally  the  magneto  calling 
apparatus  and  local  source  of  energy  for  speaking  purposes  have 
both  given  way  to  the  so-called  common  battery  system  of  opera- 
tion.3 In  each  case  the  effect  of  the  change  has  been  an  economy 
in  operation  or  an  increase  of  efficiency.  Usually  the  change  has 
brought  about  an  improvement  in  both  directions. 

In  most  of  these  cases,  however,  the  introduction  has  been  easy 
for  the  telephone  authorities.  The  instrument  displaced  has  been 
one  which  quickly  wore  out  and  must  have  been  replaced  by  an- 
other of  the  same  kind  if  a  better  kind  had  not  been  invented. 
Moreover,  the  rapid  growth  of  the  telephone  business,  and  con- 
sequent perpetual  necessity  for  fresh  construction,  has  facilitated 
the  introduction  of  the  latest  appliances.  Indeed,  it  is  probably 
easier  for  well-trained  engineers  in  the  service  of  the  government, 
impelled  as  they  are  by  their  professional  pride  and  esprit  de  corps, 
to  keep  fresh  construction  abreast  of  current  technical  progress 
than  not  to  do  so. 

Opponents  of  the  policy  of  public  ownership  of  business  under- 
takings sometimes  assert  that  nevertheless  the  tendency  of  such 
undertakings  is  to  hinder  industrial  progress  because  they  offer 
no  adequate  stimulus  to  invention.  Thus  a  modern  French  oppon- 

1  Ergebnisse  RPT,  1891-95,  p.  55.    These  official  reports  are  particularly  valu- 
able for  the  purpose  of  illustrating  the  technical  progress  of  the  telephones. 
3  Ibid.,  1896-1900.  3  Ibid.,  1901-05. 


TECHNICAL  PROGRESS  67 

ent,  Paul  Leroy-Beaulieu,  after  alluding  to  the  work  of  the  great 
inventors  and  men  of  science  of  the  nineteenth  century,  observes: l 
"  The  State  on  the  contrary  invents  nothing."  This  is,  of  course, 
true.  It  is  equally  true  that  private  business  corporations  invent 
nothing.  Inventions  are  the  inexplicable  products  of  human 
ingenuity.  If  there  were  no  opportunity  for  the  remunerative 
exploitation  of  these  products  of  human  ingenuity,  and  conse- 
quently no  incentive  to  appeal  to  the  self-interest  of  inventors,  it  is 
probable  that  inventions  would  nevertheless  continue  to  be  made. 
Perhaps  not  so  many  men  of  an  inventive  turn  of  mind  would  sacri- 
fice their  health  in  the  pursuit  of  fortune,  but  few  would  deny 
themselves  the  pleasure  of  exercising  their  inventive  faculties. 
The  maintenance  of  the  supply  of  inventions  would  be  insured 
not  only  by  the  amour  propre  of  the  individual,  but  also  by  the 
very  nature  of  the  inventive  faculty  itself. 

The  important  matter  from  the  point  of  view  of  the  public  is  to 
make  suitable  arrangements  for  the  testing  and  proper  application 
of  the  really  valuable  inventions.  Under  the  regime  of  free  competi- 
tion this  is  provided  for  automatically  by  the  play  of  private  enter- 
prise. If  an  inventor  has  hit  upon  a  valuable  idea  he  should  have 
no  difficulty  in  obtaining  financial  backing  and  thus  in  being  en- 
abled to  put  his  invention  before  the  public.  The  public  will  then 
determine  by  means  of  the  automatic  operation  of  the  ordinary 
forces  of  demand  and  supply  the  reward  which  the  promoters  of 
the  invention  are  to  receive  for  the  work  they  have  performed  and 
the  risks  they  have  undertaken.  The  desire  for  this  reward  in- 
sures the  testing  and  proper  application  of  the  really  valuable 
inventions. 

Under  a  regime  of  monopoly  it  is  not  practicable  to  employ  this 
rough  and  ready  method  of  threshing  the  wheat  from  the  chaff. 
The  policy  of  granting  special  concessions,  authorizing  private 
enterprise  to  exploit  an  invention  for  a  limited  period  of  time,  is 
open  to  the  objection  that  it  violates  the  principle  of  monopoly- 
For  example,  it  is  absurd  to  organize  innumerable  stock  compa- 
nies and  to  establish  innumerable  rival  telegraph  systems  in  order 
to  ascertain  the  comparative  merits  of  the  devices  for  increasing 
1  Vtlat  moderne  et  ses  fonciions,  3rd  edit.,  1900,  p.  49. 


68  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  speed  of  telegraphy,  which  are  associated  with  the  names  of 
Wheatstone,  Murray,  Pollak  and  Virag,  Siemens  and  Halske, 
Meyer,  Baudot,  Mercadier,  Rowland  and  Delany,  to  say  nothing 
of  the  divers  other  similar  contrivances,  already  born  or  about  to 
be  born  from  the  fertile  brains  of  our  inventive  geniuses.  There 
is  no  alternative  but  to  substitute  for  the  principle  of  competition 
that  of  organization. 

In  Germany  a  special  office  in  the  telegraph  service  was  created 
in  1876,  and  its  incumbent  was  charged  with  the  duty  of  following 
contemporary  scientific  affairs  and  encouraging  technical  research 
in  the  field  of  telegraphy.  In  1888  this  office  was  expanded  into  a 
bureau.  In  1899  the  bureau  was  expanded  into  an  experimental 
station.1  At  the  present  day  also  a  Studiumgesellschaft  is  main- 
tained as  a  cooperative  undertaking  by  the  government  and  the 
two  great  electrical  concerns,  the  Allgemeine  Elektrizitats-Gesell- 
schaft  and  the  Siemens  and  Halske-Schuckert  Works.  Moreover 
the  close  connection  between  the  German  governments  and  higher 
education  enables  them  to  secure  the  cooperation  of  specialists 
engaged  in  advanced  research  work  in  the  fields  of  physical  and 
chemical  investigation  with  the  technical  corps  of  their  business 
undertakings.  The  entire  scientific  force  of  the  nation  is  so  organ- 
ized as  to  render  the  most  efficient  service  in  the  solution  of  prac- 
ticable problems.  Thus  the  administrative  officials  are  not  only 
in  a  position  to  follow  easily  the  technical  developments  in  their 
department,  but  also  to  grant  subsidies  when  expedient,  in  order 
to  encourage  the  prosecution  of  the  promising  investigations. 

As  early  as  1884  the  German  telegraph  authorities  were  experi- 
menting with  attempts  to  replace  local  batteries  in  the  operation 
of  telephone  circuits  by  one  central  source  of  energy.2  These  at- 
tempts did  not  meet  with  success,  and  the  problem  was  eventually 
solved  in  America.  The  Germans,  however,  did  not  fail  to  import 
the  improvement,  as  soon  as  it  became  available,  just  as  they  had 
previously  imported  another  American  invention  of  great  signi- 

1  Jung,  II,  p.  92.   Since  1886  special  appropriations  have  been  sanctioned  also  by 
the  Bavarian  Landtag  for  the  purpose  of  encouraging  scientific  research  with  a  view 
to  the  improvement  of  the  state  railroad,  postal,  telegraph  and  telephone  undertak- 
ings. Cf.  Statistischer  Bericht  Bayerischer  Verkehrsanstaltent  1890,  pp.  145-64, 

2  A.  P.  T.,j887,  pp.  643-SS. 


TECHNICAL  PROGRESS  69 

ficance  in  the  progress  of  telephony,  the  multiple  switchboard.1 
Under  the  original  style  of  simple  switchboard  the  use  of  a  second 
operator  to  effect  a  connection  became  necessary  as  soon  as  the 
number  of  subscribers'  lines  became  so  numerous  that  one  opera- 
tor could  not  reach  any  two  terminals  simultaneously.  The  pur- 
pose of  the  multiple  switchboard  is  to  distribute  the  work  of  making 
connections  among  a  number  of  operators,  each  of  whom  can  effect 
any  local  connection  that  may  be  desired  by  the  subscribers  as- 
signed to  her  care,  without  the  assistance  of  a  second  operator. 
The  result  is  both  a  saving  of  time  to  telephone  users  and  a  saving 
of  expense  in  the  operation  of  the  exchange. 

The  substitution  of  the  common  battery  for  the  separate  local 
batteries  as  the  source  of  energy  for  exchange  operations  brought 
a  further  saving  in  time  and  expense.  It  made  possible  the  replace- 
ment of  the  magneto  calling  apparatus  by  an  automatic  arrange- 
ment which  gives  the  signal  to  " central"  by  the  mere  removal 
of  the  subscriber's  receiver  from  the  hook  where  it  rests  when  not 
in  use.  The  use  of  tiny  incandescent  lamps  (instead  of  shutters, 
or  "  drops,"  marked  with  the  subscriber's  number)  to  notify 
"central"  that  a  connection  is  desired  by  a  given  subscriber  was 
introduced  at  about  the  same  time  as  the  common  battery.  By 
these  improvements  the  operator's  attention  is  attracted  more 
quickly  by  the  subscriber's  call  signal,  and  consequently  the  de- 
sired connection  is  made  more  quickly.  Furthermore,  the  use  of 
the  incandescent  lamp  enables  the  operator  to  supervise  a  talk 
without  "  listening-in,"  and  thus  to  ascertain  promptly  when  a 
subscriber  has  obtained  a  desired  person  and  when  a  talk  is  termi- 
nated. The  subscriber  does  not  have  to  remember  to  "ring  off" 
nor  the  "central"  to  ascertain  if  the  subscriber  has  forgotten  that 
irksome  little  duty.  Thus  useless  waiting  can  be  spared  to  the 
person  who  calls  and  useless  tying-up  of  his  line  to  the  person 
who  is  called,  and  useless  interrogatories,  such  as  "  Have  you  got 
them?"  and  "Are  you  finished?"  to  the  exchange  operator.2 

1  Jung,  II,  pp.  86-90,  contains  a  summary  of  the  technical  progress  of  the  imperial 
telephone  system  up  to  1899.  The  primary  sources  of  information  are  the  official 
Ergebnisse  RPT,  which  appear  at  intervals  of  five  years.  Cf.  also  Die  Entwicklung 
der  Fernsprechiechnik,  A.  P.  T.,  1902,  pp.  271,  316,  345. 

*  The  most  lucid  and  at  the  same  time  most  entertaining  account  of  the  operations 


70  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  first  multiple  switchboards  were  brought  into  Germany  in 
1886  and  installed  in  the  exchanges  at  Berlin  and  Hamburg.  Their 
manufacture  was  quickly  taken  up  by  the  leading  German  makers 
of  telephone  apparatus,  Siemens  and  Halske,  Mix  and  Genest,  and 
R.  Stock  and  Company  (later  the  Deutsche  Telephonwerke).  Their 
use  was  extended  after  1893  to  the  other  large  cities  in  response 
to  the  increasing  size  of  their  exchange  systems,  and  then  to  the 
exchanges  in  smaller  cities  as  they  in  their  turn  outgrew  the  old 
style  of  simple  switchboard.  The  magneto  calling  apparatus  was 
first  introduced  in  thirty  of  the  larger  exchanges  between  1892  and 
1895  in  place  of  the  inferior  calling  devices  that  had  done  service  be- 
fore that  date.  After  1895  it  was  introduced  into  all  new  exchanges 
until  the  invention  of  the  common  battery  switchboard.  The  latter 
was  introduced  during  the  period  1901-1905  into  a  number  of 
larger  exchanges  which  were  reconstructed  during  that  period 
in  order  to  keep  pace  with  the  increased  demands  upon  the  service. 
In  general  business  men  dislike  the  disturbance  which,  to  a  certain 
extent,  is  inevitable  in  connection  with  alterations  of  so  funda- 
mental a  nature,  and  the  present  policy  of  the  imperial  telephone 
administration  is  to  substitute  the  common  battery  when  the 
existing  installations  wear  out  or  when  the  reconstruction  of  an 
exchange  system  is  required  in  order  to  facilitate  the  further  ex- 
pansion of  the  exchange  business. 

In  1900  an  automatic  switchboard  constructed  on  the  Strowger 
system  was  experimentally  installed  for  a  special  service  in  Berlin, 
and  more  recently  has  been  tried  on  a  larger  scale  in  the  city  of 
Hildesheim.  The  purpose  of  the  substitution  of  the  automatic 
for  the  manual  switchboard  is  the  elimination  of  the  exchange 
operator  from  the  telephone  system.  No  matter  how  carefully 
trained  exchange  operators  may  be,  they  are  after  all  human 
beings,  subject  to  all  the  frailties  of  human  nature.  They  cannot 
be  expected  always  to  answer  calls  with  the  alacrity  and  to  make 
the  desired  connections  with  the  certainty  of  machines.  An  ex- 

of  a  telephone  exchange  that  has  come  to  the  writer's  attention  is  that  of  H.  L.  Webb: 
The  Telephone  Business;  its  Past,  Present,  and  Future,  London,  1904.  Schwaighofer, 
Grundlagen  der  Preisbildung,  appendix  Vb,  states  that  as  a  result  of  the  introduction 
of  incandescent  lamp  signals  in  the  Munich  exchange  in  1900  one  operator  could 
handle  25%  more  calls  than  formerly. 


TECHNICAL  PROGRESS  71 

change  system  in  which  the  subscriber  makes  his  own  connection 
without  the  intervention  of  alien  hands  also  insures  a  greater 
degree  of  secrecy  for  telephone  conversations  than  is  possible  under 
any  system  of  manual  operation.  By  means  of  the  automatic 
switchboard,  each  subscriber  can  find  out  for  himself  when  the 
line  of  the  party  whom  he  wants  is  unoccupied,  and  he  is  not  sub- 
jected to  the  liability  of  the  vexatious  response,  "  line  busy." 

The  determination  of  the  conditions  under  which  the  introduc- 
tion of  automatic  switchboards  will  produce  a  saving  in  the 
expenses  of  operation  is  purely  a  matter  of  mathematical  com- 
putation. These  conditions,  however,  vary  considerably  under 
different  circumstances.  The  saving  effected  by  the  automatic 
switchboard  increases  with  the  increase  in  size  of  the  manual 
switchboard  which  it  replaces.  But  in  its  present  form  it  is  not 
capable  of  handling  long-distance  as  well  as  local  traffic.  Moreover, 
it  is  better  adapted  to  exchange  systems  composed  of  direct  or  of 
party  lines  than  to  those  in  which  there  are  many  private  branch 
exchanges.  Hence,  the  greater  the  proportion  of  long-distance  traf- 
fic and  of  private  branch  exchanges  in  a  given  exchange  system, 
the  less  the  advantage  of  the  automatic  system  of  operation. 

In  Germany  the  large  exchanges  are  operated  under  those  traffic 
conditions  which  are  least  favorable  to  the  automatic  switch- 
board. Both  the  use  of  the  private  branch  exchange  and  the 
proportion  of  long-distance  to  local  traffic  are  greater  in  Germany 
than  in  America.  In  1905  for  every  one  hundred  telephones  in  the 
imperial  postal  area  that  were  connected  directly  with  a  public 
exchange,  there  were  sixty  and  six-tenths  telephones  connected 
only  indirectly  through  a  private  branch  exchange.  The  propor- 
tion in  America  is  nothing  like  this,  because  the  party  line  in 
America  performs  much  of  the  work  done  by  the  private  branch 
exchange  in  Germany.  In  1906  the  number  of  long-distance  talks 
in  the  imperial  telephone  service  was  more  than  one-fifth  as  great 
as  the  number  of  local  talks.  In  the  United  States  in  the  same  year 
the  number  of  long-distance  talks  over  the  lines  of  the  American 
Telephone  and  Telegraph  Company  was  about'one  thirty-fifth  of 
the  number  of  local  talks  effected  by  the  forty- three  Bell  operat- 
ing companies.  The  actual  ratio  of  long-distance  to  local  traffic  in 


72  PUBLIC  OWNERSHIP  OF  TELEPHONES 

America,  however,  is  greatly  affected  by  two  circumstances  which 
are  not  susceptible  of  statistical  treatment.  The  line  of  division 
between  local  and  long-distance  traffic  is  drawn  differently  in  the 
two  countries,  and  the  proportion  of  the  total  long-distance  traffic 
of  the  United  States  which  is  performed  by  the  American  Tele- 
phone and  Telegraph  Company  is  very  much  greater  than  the 
proportion  of  local  traffic  which  is  performed  by  the  Bell  operating 
companies.1  These  two  circumstances  tend  to  offset  one  another, 
but  it  is  impossible  to  determine  to  what  extent  this  is  the  case. 
In  any  event  the  introduction  of  the  automatic  switchboard  cannot 
be  expected  to  go  on  as  rapidly  in  Germany  as  in  the  United 
States.  In  the  former  country  it  is  probable  that  the  automatic 
method  of  operation  will  find  its  greatest  field  of  usefulness  in  a 
modified  form  as  a  substitute  for  the  party  line,  or,  more  strictly 
speaking,  for  the  manual  private  branch  exchange  in  urban  resi- 
dential service,  and  as  a  substitute  for  the  small  manual  switch- 
board in  the  rural  village  service,  where  the  demand  is  not  for  local 
intercommunication,  but  for  connection  over  a  common  trunk  line 
with  a  neighboring  urban  exchange  system. 

*  Obviously  the  technical  questions  that  arise  in  connection  with 
the  introduction  of  such  improvements  as  the  automatic  switch- 
board can  be  solved  only  by  careful  study  on  the  part  of  specially 
trained  engineers.  To  attempt  a  solution  by  any  other  method 
simply  exposes  the  community  to  the  risk  of  an  unwise  disposition 
of  the  public  resources. 

From  the  point  of  view  of  the  community  as  a  whole  there  is 
a  limit  beyond  which  the  introduction  of  radical  improvements 
ceases  to  be  advantageous.  When  the  improvement  can  be  made 
only  by  throwing  on  the  scrap  heap  an  existing  installation  which 
has  neither  worn  out  nor  become  inadequate  to  meet  the  existing 
need,  the  expediency  of  the  change  becomes  a  question  of  balancing 
the  certain  loss  with  the  expected  gain.  The  introduction  of  the 
later  improvement  will  not  always  be  a  policy  of  true  economy.  It 
will  only  be  desirable  to  incur  the  expense  of  installing  the  new 

1  Annual  Report  of  the  American  Tel.  6*  Tel.  Co.,  1906,  pp.  19,  21.  The  Ger- 
man figures  are  taken  from  the  official  Statistischer  Bericht  which  appears  each 
year  and  covers  the  preceding  financial  year. 


TECHNICAL  PROGRESS  73 

equipment  if  the  expected  improvement  in  the  service  appears 
sufficiently  valuable.  These  are  questions  which  require  for  their 
solution  minute  calculations  that  can  be  made  only  by  trained 
experts  and  on  the  basis  of  carefully  collected  statistical  data. 
Under  a  regime  of  free  competition  similar  questions  may  be 
solved  in  the  course  of  a  struggle  for  existence  waged  between  the 
promoters  of  alternative  services.  If  the  rejection  by  the  commun- 
ity of  an  inferior  set  of  arrangements  for  performing  a  given  service 
involves  the  waste  of  a  quantity  of  capital,  the  immediate  loss  falls 
on  the  shoulders  of  the  unlucky,  or  unwise,  promoter  of  the  aban- 
doned venture.  But  where  the  liberty  of  competition  is  illusory, 
there  is  no  recourse  but  for  the  community  to  intrust  the  protec- 
tion of  its  investment  and  the  decision  between  alternative  modes 
of  performing  the  same  service  to  the  expert  opinion  of  specially 
trained  public  officials. 

The  community  cannot  save  itself  from  the  danger  of  mistakes 
of  judgment  on  the  part  of  its  public  officials  by  handing  over  the 
monopoly  to  a  private  corporation.  The  latter  cannot  be  expected 
to  introduce  improvements  except  at  the  expense  of  users  of  the 
service,  or  of  the  community  which  grants  the  monopoly,  and  this 
is  precisely  what  happens  under  public  ownership.  Nor  are  tech- 
nical experts  any  less  liable  to  errors  of  judgment  when  employed 
by  a  private  corporation  than  when  employed  by  the  government 
itself.  The  expert  in  the  governmental  service  has,  however,  one 
important  advantage  over  the  expert  in  private  service.  Under 
public  management  of  business  undertakings  the  means,  both  of 
ascertaining  and  of  enforcing  the  opinion  of  consumers,  are  better 
organized.  When  a  question  arises  of  introducing  an  improvement 
that  will  increase  the  expense  of  rendering  a  certain  service,  the 
wishes  of  those  who  will  be  called  on  to  pay  the  bill  find  more 
effective  expression  through  their  representative  institutions  if  the 
service  is  maintained  under  public  than  if  under  private  control. 
This  feeling  that  their  opinions  will  have  more  weight  on  public 
than  on  private  authorities,  reacts  on  the  disposition  of  the  con- 
sumers themselves,  and  makes  them  readier  to  take  advantage  of 
their  representative  institutions  and  to  express  their  wishes  in 
matters  of  public  business  management.  Thus  the  expert  in  the 


74  PUBLIC  OWNERSHIP  OF  TELEPHONES 

governmental  service  can  keep  in  closer  touch  than  can  the  one  in 
private  service  with  the  sources  of  information  on  which  he  must 
base  his  calculations,  and  should  be  able  to  compute  more  accu- 
rately the  probable  effect  of  a  contemplated  change  in  the  supply 
of  a  certain  service  on  the  demand  for  that  service.1 

The  best  demonstration  of  the  possession  of  business  capacity 
by  public  authorities  is  afforded  by  their  ability  to  secure  and  profit 
by  the  active  cooperation  of  the  users  of  the  service  which  they  are 
charged  to  perform.  Thus  the  German  authorities  demonstrate 
their  possession  of  real  business  capacity  by  their  habit  of  supple- 
menting the  annual  reports  made  to  them'  by  the  organized  busi- 
ness interests  of  the  empire  by  means  of  special  conferences  which 
the  representatives  of  the  business  community  are  encouraged  to 
attend  whenever  an  occasion  arises.  For  example,  in  Bavaria  in 
1895,  there  was  an  unusual  number  of  complaints  in  regard  to 
the  character^of  the  telephone  service  in  Munich. 2  A  circular  letter 
was  sent  out  to  the  local  subscribers  by  the  secretary  of  the  Cham- 
ber of  Commerce,  inquiring  whether  (a)  connections  were  made 
correctly  and  promptly,  (b)  interruptions  in  conversations  often 
occurred,  (c)  operators  were  impolite,  and  (d)  the  same  disturbances 
occurred  in  interurban  as  in  urban  traffic.  The  replies  showed 
that  the  dissatisfaction  was  considerable  under  heads  a  and  b. 
Accordingly  the  Chamber  addressed  a  memorial  to  the  telephone 

1  With  the  development  of  the  means  of  communication  and  the  strengthening  of 
international  relationships,  the  reliability  of  the  trained  expert  in  the  determination 
of  important  technical  problems  becomes  ever  greater.    Two  generations  ago,  the 
trained  expert  was  always  in  danger  of  becoming  provincialized  and  falling  out  of 
touch  with  the  progress  of  science.   To-day  the  constant  international  association 
of  scientific  men  and  practicing  engineers  is  becoming  one  of  the  most  attractive 
features  of  a  technical  career  as  well  as  one  of  the  most  efficacious  safeguards  against 
scientific  provincialism.  Indeed  the  international  rivalry  of  scientific  men  constitutes 
a  valuable  spur  to  technical  progress.  Every  international  exhibition  has  its  gathering 
of  electricians,  and  each  delegation  makes  a  report  on  its  return  to  its  home  country. 
Recently  the  telegraph  and  telephone  engineers  on  the  Continent  of  Europe  have 
formed  a  permanent  international  association.  The  first  meeting  was  held  in  Buda- 
pest in  September,  1908,  and  a  paper  was  read  and  discussed  concerning  the  various 
methods  of  automatic  telephone  exchange  operation  and  the  economy  of  its  intro- 
duction in  place  of  the  manual  switchboard.  Cf.  Journal  Ttttgraphique,  Dec.  25, 1908, 

PP-  349-355- 

2  HGK  Oberbayern,  1895,  p.  83. 


TECHNICAL  PROGRESS  7$ 

administration  praying  for  relief  in  these  two  respects.  The  ad- 
ministration answered  that  the  trouble  was  caused  partly  by  the 
neglect  of  the  telephone  users  to  follow  directions  when  using  their 
instruments,  and  partly  by  the  unfamiliarity  of  the  exchange 
operators  with  the  multiple  switchboard  which  had  just  been  in- 
stalled. The  members  of  the  Chamber  were  invited  to  inspect  the 
central  office  and  observe  for  themselves  the  methods  of  exchange 
operation.  This  was  done  to  the  general  satisfaction  of  all  parties. 
The  same  good  understanding  between  the  telephone  adminis- 
tration and  the  subscribers  to  the  service  prevails  in  all  parts  of 
Germany.  The  confidence  on  the  part  of  the  telephone  users  that 
the  administration  is  always  ready  to  listen  to  grievances  and  to 
make  all  reasonable  efforts  to  ameliorate  conditions  that  are  shown 
to  be  susceptible  of  improvement  is  a  factor  of  real  assistance  to 
the  administration  in  its  task  of  maintaining  its  service  in  a  sat- 
isfactory state  of  efficiency.  The  German  administrator  is  proud 
of  this  confidence  and  takes  great  satisfaction  in  preserving  it.  In 
return,  he  feels  a  sense  of  genuine  responsibility  towards  the  com- 
munity at  large  for  the  proper  conduct  of  the  business  undertaking 
with  which  he  is  charged.  Without  these  mutual  feelings  of  confi- 
dence and  responsibility  the  German  system  of  business  organiza- 
tion, with  a  view  to  cooperation  in  the  work  of  public  adminis- 
tration, would  not  work  with  its  actual  smoothness  and  efficiency. 
The  sense  of  responsibility  on  the  part  of  the  administration,  com- 
bined with  the  loyal  response  of  the  business  community  when 
called  upon  to  perform  its  part  in  the  work  of  the  whole  organiza- 
tion, makes  it  possible  for  the  Germans  to  dispense  with  the  motive 
of  pecuniary  self-interest  in  the  management  of  such  undertakings 
as  the  telephone. 


CHAPTER  VI 

THE  RELATIONS  BETWEEN  THE  TELEPHONE  AND  OTHER  BRANCHES 
OF  THE  GERMAN  ELECTRICAL  INDUSTRY  TO  THE  ACT  OF  1892 

THE  electrical  telegraph  was  the  first  application  of  the  electric 
current  to  the  needs  of  the  workaday  world,  and  for  a  long  time 
remained  the  only  electrical  industry  of  public  importance.  The 
foundation  of  the  further  development  of  the  electrical  industry 
was  laid  in  1866  by  the  simultaneous  invention  of  the  dynamo- 
electric  engine,  or,  more  shortly,  the  dynamo,  by  Werner  Siemens 
in  Germany  and  Professor  Wheats  tone  in  England.  The  dynamo, 
as  improved  by  later  inventors,  especially  by  Gramme  in  1871, 
first  made  possible  the  cheap  generation  of  electrical  power  on  a 
large  scale.  So  long  as  chemical  action  remained  the  only  source 
of  electrical  energy,  the  profitable  application  of  large  currents 
to  industrial  purposes  had  baffled  all  inventors.  When  at  last  this 
difficulty  was  surmounted,  the  electrical  industry  entered  upon 
a  new  stage  of  its  development. 

In  1876,  the  same  year  that  witnessed  the  birth  of  the  telephone, 
Jablochkoff  patented  his  electric  arc  lamp.  This  important  inven- 
tion had  to  overcome  even  more  obstacles  than  did  the  telephone 
before  becoming  commercially  practicable.  But  the  same  unac- 
countable spirit  of  invention  which  in  the  early  telephone  industry 
is  personified  by  the  names  of  Bell,  Blake,  Dolbear,  Edison,  Gower, 
Gray,  Hughes,  and  their  associates,  displayed  itself  with  equal 
effect  in  the  arc  lighting  industry.  The  work  of  Brush,  Weston, 
Thomson,  Houston,  and  others  quickly  established  the  place  of 
the  arc  lamp  in  the  world  of  affairs.  The  other  branch  of  the  elec- 
tric lighting  industry  was  founded  by  Edison  in  1879  with  the 
invention  of  the  incandescent  lamp.1 

In  Germany  the  further  development  of  the  lighting  industry 

1  Cf.  Central  Electric  Light  and  Power  Plants,  1902;  U.  S.  Bureau  of  the  Census, 
1905,  ch.  viii. 


THE  ACT  OF  1892  77 

fell  into  capable  hands.1  In  1873  a  clever  young  Bavarian,  Schuck- 
ert  by  name,  after  spending  a  number  of  years  in  the  electro- 
technical  shops  of  America,  among  others  in  that  of  Edison, 
returned  to  his  native  land.  At  once  he  founded  a  business  of  his 
own,  just  as  Werner  Siemens  had  done  a  quarter  of  a  century 
earlier.  When  the  opportunity  came  he  promptly  took  up  the 
manufacture  of  arc  lamps,  and  his  little  shop  quickly  expanded 
into  a  big  manufacturing  establishment.  In  1882  the  foundation 
of  the  business  which  later  became  the  great  Allgemeine  Elek- 
trizitdts-Gesellschaft  was  laid  by  a  far-sighted  and  energetic 
engineer  until  then  in  the  employment  of  Siemens  and  Halske, 
Emil  Rathenau  by  name.  He  acquired  from  the  Compagnie  Con- 
tinentale  Edison  of  Paris  the  exclusive  right  to  exploit  Edison's 
inventions  in  the  field  of  incandescent  lighting  in  Germany.  As 
the  result  of  litigation  to  prevent  the  infringement  of  the  Edison 
patent  rights,  the  monopoly  in  Germany  was  broken  by  judicial 
restriction  of  the  scope  of  the  fundamental  patent  (1885),  and  a 
new  impetus  was  given  to  the  growth  of  the  industry.  By  this 
time  the  discoveries  of  electrical  science  during  the  preceding  ten 
years  had  become  matters  of  common  knowledge,  and  towards 
the  latter  part  of  the  decade  there  was  a  general  rush  of  German 
capital  and  business  enterprise  into  these  branches  of  the  elec- 
trical industry. 

The  origin  of  electrical  traction  was  not  far  behind  that  of  the 
electric  light.2  In  1879  -the  old  German  firm  of  Siemens  and  Halske 
exhibited  their  first  electric  railway.  In  1881  they  established  an 
experimental  undertaking  in  Gross-Lichterfelde,  near  Berlin,  and 
in  1884  another  between  Frankfort  and  Offenbach.  It  remained, 
however,  for  American  inventors  to  make  the  electric  railway  a 
commercial  success.  Before  the  end  of  the  decade  the  systems  of 
Sprague  and  Thomson-Houston  had  been  perfected  and  the  work 
of  construction  had  begun.  Siemens  and  Halske  had  also  inde- 
pendently improved  their  system,  and  in  1889  made  their  first 

1  An  excellent  account  of  the  development  of  the  German  electro-technical  industry 
up  to  the  year  1900  is  contained  in  F.  Fasolt:  Die  sieben  grossten  deutschen  Elektrizi- 
Uits-Gesellschaften,  Dresden,  1904. 

1  Cf.  Street  and  Electric  Railways,  1902;  U.  S.  Bureau  of  the  Census,  1905,  Part  II. 


78  PUBLIC  OWNERSHIP  OF  TELEPHONES 

commercially  successful  installation  at  Budapest.  In  the  following 
year  the  A.  E.-G.1  acquired  the  exclusive  right  to  exploit  Sprague's 
patents  in  Germany,  and  in  1892  the  Thomson-Houston  interests 
in  Germany  were  definitely  placed  in  the  hands  of  the  Union 
Elektrizitats-Gesellschaft. 2 

In  1890  there  were  thirty  public  lighting  plants  in  operation  in 
Germany,  and  the  equipment  of  a  number  of  horse  railways  with 
electric  motive  power  was  projected.  On  January  first  the  total 
number  of  electrical  undertakings  using  the  public  ways  was  2,615. 
Of  these  1,923  were  in  urban  and  692  in  rural  districts;  2,590 
installations  served  for  public  or  private  lighting  purposes,  16 
for  power  transmission,  and  9  for  electrolytic  operations.3  A  year 
later  the  number  had  greatly  increased.4  Obviously  the  govern- 
mental telegraph  and  telephone  undertaking  could  no  longer  be 
regarded  as  synonymous  with  the  German  electrical  industry. 

The  growth  of  these  other  branches  of  the  electrical  industry 
was  bound  to  become  a  matter  of  intimate  concern  to  the  public 
telephone  authorities.  The  telegraph,  and  especially  the  telephone, 
is  operated  by  an  extremely  feeble  current.  The  electric  light,  on 
the  other  hand,  and  still  more  the  street  railway,  is  operated  by  a 
comparatively  powerful  current.  The  telegraph  is  actuated  by  a 
current  of  from  one  ampere  to  one- tenth  of  an  ampere,  the  tele- 
phone by  one  of  from  a  thousandth  to  a  millionth  of  an  ampere. 
The  electric  light  and  street  railway  require  currents,  however, 
of  several  thousand  amperes.  In  the  state  of  electrical  science  that 
prevailed  in  1890,  the  existence  of  such  large  currents  in  the 
neighborhood  of  a  telephone  line  was  likely  to  become  a  source  of 
serious  damage  to  the  entire  telephone  system.  In  the  first  place, 
it  exposed  the  telephone  system  to  danger  from  powerful  stray 
currents  which  might  escape  from  adjacent  lighting  or  street  rail- 
way circuits.  These  could  easily  enter  the  telephone  circuit  and 
greatly  damage  the  delicate  instruments  which  were  intended  to 
sustain  currents  only  of  infinitesimal  volume.  Before  the  extent 

1  The  usual  abbreviation  of  the  Allgemeine  Elektrizitats-Gesellschaft. 

2  To  be  referred  to  hereafter  as  the  Union  E.-G. 
8  Journal  Telegraphique,  1891,  p.  24. 

4  Drucksachen  des  Reichstages,  8.  Leg.-Per.,  Sess.  1891,  4.  Anlageband,  p.  2701. 


THE  ACT  OF  1892  79 

of  this  danger  was  recognized  a  number  of  exchanges  were  com- 
pletely destroyed  by  fires  caused  by  the  entrance  of  such  stray 
currents. 

Secondly,  where  two  circuits,  one  carrying  a  powerful  and  the 
other  a  weak  current,  ran  along  parallel  to  one  another,  the 
stronger  current  was  found  to  exercise  a  remarkable  and  extremely 
disagreeable  influence  over  the  weaker.  This  is  the  so-called  phe- 
nomenon of  induction.  For  example,  if  a  trolley  wire  and  a  tele- 
phone wire  run  along  the  same  street  parallel  to  one  another  and 
only  a  few  feet  apart,  the  effect  of  the  action  of  the  stronger  cur- 
rent upon  the  weaker  is  to  render  conversation  over  the  telephone 
wire  uncertain  and  vexatious.  The  disturbances  produced  by 
induction  in  the  telephone  circuit  may  be  described  as  follows: 
(i)  a  steady  humming  sound;  (2)  an  intermittent  musical  sound 
like  a  distant  steam  siren  whistle;  (3)  an  intermittent  rasping 
sound ;  and  (4)  the  disarrangement  of  the  call  signals  at  the  cen- 
tral office.  On  the  occasions  when  the  current  of  the  electric  street 
railway  was  suddenly  increased,  or  as  suddenly  interrupted,  —  such 
as,  for  example,  by  the  short  circuiting  of  a  motor  or  the  burning  of 
a  fuse,  —  the  majority  of  the  shutters,  which  at  that  period  were 
used  for  call  signals  in  the  exchange  offices,  would  drop  at  once. 
These  peculiar  effects  of  the  strong  currents  on  the  weak  occurred 
only  When  the  conductors  of  both  currents  were  placed  in  close 
proximity  and  maintained  the  same  spatial  relations  to  one  another 
for  a  considerable  distance.  The  resulting  induction  had  no  effect 
on  the  service  actuated  by  the  strong  current,  confining  its  per- 
nicious influence  to  that  actuated  by  the  weak. 

The  German  telephone  authorities  were  quick  to  foresee  the 
danger  which  the  unregulated  construction  of  circuits  in  the  public 
ways,  intended  to  carry  strong  currents,  would  bring  to  their 
telephone  service.  In  March,  1886,  they  forbade  the  construction 
of  such  circuits  in  the  public  ways  until  after  they  had  been  noti- 
fied concerning  the  nature  of  the  project,  and  reserved  the  power 
of  prescribing  methods  of  construction  calculated  to  protect  the 
telephone  service  from  perturbing  influences.1  At  that  time  the 

1  The  telephone  authorities  could  control  the  construction  of  other  electrical  un- 
dertakings on  the  public  ways  only  with  the  consent  and  cooperation  of  the  police 


8o  PUBLIC  OWNERSHIP  OF  TELEPHONES 

other  branches  of  the  electrical  industry  were  in  their  infancy,  and 
the  policy  of  the  telephone  authorities  could  be  maintained  tem- 
porarily without  causing  considerable  inconvenience  to  the  activ- 
ity of  German  enterprise.  The  authorities  meanwhile  set  about  the 
task  of  gaining  further  information  in  order  to  be  prepared  for  the 
definite  determination  of  the  relations  that  should  obtain  between 
their  telephones  and  the  undertakings  using  strong  currents.  It 
was  clear  that  such  a  determination  could  not  long  be  delayed. 

In  November,  1887,  a  special  commission  of  the  Elektrotech- 
nischer  Verein  was  appointed  expressly  to  investigate  this  matter. 
On  this  commission  sat  some  of  the  most  eminent  men  of  science 
of  whom  Germany  could  boast.  It  is  enough  to  mention  the  names 
of  Werner  Siemens  and  Helmholtz.  The  commission  made  a 
thorough  study  of  the  situation  and  reported  in  June,  I888.1 

The  cause  of  the  trouble,  in  the  opinion  of  the  commission, 
was  the  simultaneous  use  of  the  earth  both  by  the  telephone  and 
by  the  power-circuit  undertakings  in  order  to  complete  the  elec- 
tric circuit.  The  telephone  circuit  at  that  time  was  constructed 
of  a  single  wire  which  connected  the  subscriber's  instrument  with 
the  central  office,  and  was  completed  by  the  grounding  of  this 
wire  at  each  end.  Thus,  the  current  in  each  circuit  returned  to  the 
source  of  energy  at  the  subscriber's  local  battery  by  means  of 
the  earth.  This  method  of  completing  the  circuit  had  always  been 
used  in  telegraphy,  and  in  telephony  gave  fair  satisfaction,  at  least 
on  short  lines,  until  the  appearance  on  the  scene  of  alien  and  more 

authorities  of  the  several  states  of  the  empire.  Under  the  relations  which  exist  be- 
tween the  governments  of  the  empire  and  of  the  most  important  of  the  states,  the 
kingdom  of  Prussia,  such  administrative  cooperation  is  very  easy  to  establish.  In  this 
case  the  will  of  the  imperial  telephone  authorities  was  carried  into  effect  by  a  decree 
of  the  Prussian  Ministers  of  the  Interior  and  of  Public  Works,  dated  March  16, 
1886,  instructing  the  royal  police  to  prevent  the  construction  of  electric  conductors 
in  such  a  way  as  to  interfere  with  the  operation  of  the  telephones,  whether  by  direct 
contact  or  by  induction.  In  doubtful  cases  the  telephone  authorities  were  to  be  con- 
sulted concerning  the  requirements  which  should  be  imposed  on  the  promoters  of  the 
power-circuit  installation  in  order  to  protect  the  telephones,  and  their  wishes  were 
to  be  respected.  In  practice,  it  sufficed  at  this  time  to  avoid  placing  power-circuit 
conductors  in  close  proximity  to  the  telephone  lines  for  any  considerable  distance. 
The  Prussian  decree  can  be  found  in  the  Ministerial-Blatt  der  inneren  Verwaltung, 
1886,  p.  85. 
1  A.  P.  T.  1888,  pp.  635-42. 


THE  ACT  OF  1892  81 

powerful  currents.  Even  in  the  absence  of  such  foreign  currents, 
the  construction  of  a  number  of  single  telephone  wires  parallel 
to  one  another  for  a  considerable  distance  subjected  each  line  to 
inductive  disturbances  set  up  by  the  others.  But  with  the  instal- 
lation of  grounded  lines  carrying  large  currents  the  perturbing 
effects  of  induction  were  greatly  magnified. 

The  remedy  lay  in  the  exclusion  of  the  ground  from  one  or  the 
other  of  the  circuits  concerned.  That  this  would  be  effectual  in 
protecting  the  telephone,  provided  care  was  taken  to  prevent  the 
conductor  of  the  strong  current  from  being  placed  in  too  close 
proximity  to  that  of  the  weak,  was  shown  by  the  telephone  admin- 
istration's experience  with  long-distance  lines.  In  order  to  remove 
the  mutual  induction  of  several  long-distance  lines  strung  on  the 
same  poles,  the  ground  had  been  excluded  by  the  device  of  employ- 
ing a  second  wire  to  complete  each  circuit.  Thus  the  circuit  was 
made  metallic  throughout.  By  taking  the  additional  precaution 
of  altering  the  position  of  the  pairs  of  wires  with  respect  to  one 
another  at  frequent  intervals,  the  perturbing  influence  of  mutual 
induction  was  completely  destroyed.  This  device  also  had  the 
advantage  of  making  it  impossible  for  stray  ground  currents  to 
enter  the  telephone  system. 

The  objection  to  the  introduction  of  metallic  circuits  throughout 
the  entire  telephone  system  was  that  it  would  require  the  duplica- 
tion of  the  existing  exchange  wire  plant  and  the  partial  reconstruc- 
tion of  all  central  offices.  The  resulting  expense  could  hardly  be 
defrayed  without  an  increase  of  rates.  On  the  other  hand,  the 
same  objection  applied  to  the  introduction  of  complete  metallic 
circuits  in  the  power-circuit  branch  of  the  electrical  industry.  The 
electric  light,  to  be  sure,  was  already  operated,  as  a  rule,  by  means 
of  metallic  circuits,  but  the  street  railway  appeared  unlikely  to 
become  commercially  practicable  unless  permitted  to  use  the  un- 
insulated rails  in  order  to  complete  the  circuit.  If  this  should  prove 
to  be  the  case,  there  would  be  no  safety  for  the  telephone  except 
in  preventing  the  construction  of  such  street  railways  in  the  vicin- 
ity of  the  telephone  lines,  or  in  abandoning  the  earth  to  its  more 
powerful  rival.  Experiments  were,  indeed,  being  made  with  sys- 
tems of  electric  traction  that  eliminated  the  earth  from  the  circuit, 


82  PUBLIC  OWNERSHIP  OF  TELEPHONES 

either  by  using  a  second  wire  overhead  or  by  inclosing  the  metal- 
lic circuit  in  an  insulated  culvert  underneath  the  track.  Each 
of  these  systems  was  subject  to  serious  technical  drawbacks,  and 
was  also  much  more  costly  than  that  employing  a  single  overhead 
feed- wire  with  grounded  return.  In  the  opinion  of  the  commission, 
the  insistence  that  all  power-circuit  electrical  undertakings  be  re- 
quired to  abstain  from  making  use  of  the  earth  would  result  in 
seriously  impeding  the  progress  of  the  electrical  industry. 

The  commission  recommended  that  every  possible  effort  be 
made  to  insulate  power-circuit  undertakings,  and  that  where  this 
was  not  feasible  the  telephone  circuit  should  be  made  completely 
metallic.  In  any  case,  conductors  bearing  strong  and  weak  cur- 
rents should  not  be  permitted  to  run  parallel  to  one  another  in 
close  proximity.  The  telephone  authorities  were  able  to  follow 
the  principles  laid  down  in  this  report  for  several  years  without 
exposing  their  telephone  service  to  serious  disturbance.  The 
requirement  that  prospective  users  of  the  public  ways  for  the  pur- 
pose of  erecting  electric  circuits  should  so  plan  their  installations 
as  not  to  bring  strong  currents  into  close  proximity  with  telephone 
wires  worked  no  great  hardship.  In  the  infancy  of  the  power- 
circuit  industry,  there  was  plenty  of  room  on  the  public  ways  for 
all.  For  a  while  the  avoidance  of  proximity  proved  a  sufficient 
protection  to  the  telephone  system  without  the  introduction  of  the 
metallic  circuits.  Since  for  the  most  part  the  early  power-circuits 
were  established  for  electric  lighting  purposes,  the  question  of 
making  a  disastrous  use  of  the  earth  for  return  currents  did  not 
become  urgent. 

In  passing  judgment  upon  such  administrative  regulations,  the 
fundamental  difference  between  continental  and  Anglo-Saxon 
jurisprudence  must  be  taken  into  consideration.  In  England,  the 
royal  power  centralized  early  and  took  a  judicial  form.  On  the 
Continent  it  centralized  late  and  took  an  administrative  form. 
Many  matters,  which  under  the  English  common  law  are  left  to  the 
judiciary,  are  reserved  under  continental  administrative  law  to 
the  executive  branch  of  the  government.  The  result  was  that  the 
determination  of  the  relations  between  electrical  undertakings 
employing  strong  and  weak  currents  respectively,  which,  in  the 


THE  ACT  OF  1892  83 

United  States,  where  the  telephones  were  in  private  hands,  was 
made  in  the  first  instance  by  the  ordinary  courts  of  law,  became 
on  the  Continent,  where  the  telephones  were  in  public  hands,  a 
matter  of  administrative  regulation.  Yet  under  modern  constitu- 
tional government,  these  administrative  regulations  can  be  made 
only  by  virtue  of  the  tacit  consent  of  the  legislative  authority,  and 
are  subject  to  judicial  interpretation  in  the  administrative  courts. 

The  telegraph  authorities  deduced  their  power  to  enforce  these 
requirements  from  the  imperial  constitution  of  1871,  which  estab- 
lished the  imperial  telegraph  service  and  declared  that  it  should 
be  uniform  throughout  the  empire.  There  was  no  express  grant 
of  the  right  to  make  use  of  the  public  ways  for  telegraphic  and 
telephonic  purposes,  but  the  telegraph  authorities  assumed  that 
the  creation  of  the  obligation  to  establish  a  uniform  telegraph  sys- 
tem included  the  grant  of  the  power  to  make  use  of  all  reasonable 
means  for  carrying  out  this  obligation.  Among  these  reasonable 
means  they  tacitly  assumed  that  the  use  of  the  public  ways 
and  their  maintenance  in  a  condition  compatible  with  the  proper 
functioning  of  the  telegraph  and  telephone  service  were  intended 
to  be  included.  So  long  as  no  other  important  interest  came  into 
conflict  with  the  pretensions  of  the  telegraph  authorities,  their 
interpretation  of  the  constitution  was  allowed  to  stand  unchal- 
lenged. It  was  only  when  the  time  came  for  the  application  of 
the  decree  of  1886  to  the  electric  street  railway  that  a  serious  con- 
flict of  interest  arose. 

The  necessity  for  establishing  the  relations  with  the  power- 
circuit  interests  on  a  more  secure  basis  was  then  brought  home  to 
the  telegraph  authorities  by  some  difficulties  with  certain  muni- 
cipal authorities  in  which  their  policy  towards  that  branch  of 
the  electrical  industry  had  involved  them.1 

1  HGK  Oberbayern,  1891,  pp.  37-38;  HGK  Stuttgart,  1891,  pp.  40-42.   The  con- 
flict of  interest  which  arose  at  this  time  between  the  two  branches  of  the  electrical 
industry  called  forth  a  considerable  quantity  of  controversial  literature.   Cf.  espe- 
cially: 
Anon. :  Ein  Wort  zur  rechten  Zeit  iiber  die  Benutzung  o/entlicher  Wege  fur  elektrischt 

Anlagen,  Berlin,  1891; 
Anon.:  Die  Stellung  der  Industrie  zu  den  Gesetzentwurfen  iiber  Reichs-telegraphen- 

Anlagen  und  elektrischen  Anlagen,  Berlin,  1891; 


84  PUBLIC  OWNERSHIP  OF  TELEPHONES 

In  Halle  the  local  authorities  had  decided  in  the  year  1888  to 
build  a  municipal  street  railway  in  order  to  compete  with  the  ex- 
isting private  street  railway  and  to  compel  it  to  improve  its 
service.  This  municipal  road  was  originally  intended  to  be  leased, 
and  operated  by  horse  power,  and  a  lease  was  actually  made  out 
on  that  basis.  In  1890,  however,  the  A.  E.-G.,  then  searching  for 
an  opportunity  to  make  use  of  the  Sprague  street  railway  patents, 
which  it  had  just  acquired,  induced  the  lessee,  with  the  consent  of 
the  municipal  authorities,  to  assign  his  lease  in  order  that  the  road 
might  be  equipped  with  electricity  as  a  motive  power.  The  new 
contract  with  the  city  was  executed  May  4  and  6,  1890.  The 
telegraph  authorities  at  once  objected  on  the  ground  that  the 
installation  as  planned  would  seriously  interfere  with  the  opera- 
tion of  their  telephone  circuits.  The  municipal  authorities  in- 
sisted, however,  on  permitting  the  A.  E.-G.  to  make  use  of  the 
uninsulated  rails  in  order  to  complete  the  electric  circuit.  Ulti- 
mately electric  traction  was  installed  to  the  satisfaction  of  the 
telegraph  authorities  without  abandoning  the  use  of  the  trolley 
system  of  operation.1  The  municipal  authorities,  however,  still 
asserted  their  right  to  dispose  of  their  streets  as  they  saw  fit,  and 
the  telegraph  authorities  refused  to  abandon  their  claim  to  the 
protection  of  the  telegraphs  and  telephones  against  the  damaging 
influence  of  other  electrical  undertakings. 

The  case  was  appealed  to  the  courts.  The  administration  con- 
tended that  since  its  works  were  constructed  for  an  important 
public  purpose  it  was  not  reasonable  that  other  installations 
should  be  permitted  to  occupy  the  public  ways  and  seriously 
interfere  with  their  use  for  telephonic  purposes.  The  opposing 
party  contended,  on  the  other  hand,  that  the  public  ways  were 
made  primarily  to  travel  through,  not  to  talk  through,  and  that 

von  Bar:  Der  Gesetzentwurf  iiber  das  Telegraphenwesen  des  Deutschen  Reichs  (Nr.  32 

der  Nation),  Berlin,  1891; 
Ludewig:  Zu  dem  Entwurf  eines  Gesetzes  uber  das  Telegraphenwesen  des  Deutschen 

Reichs,  A.  P.  T.,  Erganzungsheft,  August,  1891; 
Maas:  "Der  Telegraphengesetzentwurf  und  seine  Gefahren.   Eine  Kritik."  Heft  28 

der  Volkswirtschaftlichen  Zeilfragen,  Berlin,  1891. 

1  Berickt  uber  den  Stand  und  die  Verwaltung  der  Gemeinde-Angelegenheiten  der 
Stadt  Halle-a-S.  fur  1892-93. 


THE  ACT  OF  1892  85 

their  use  for  telephonic  purposes  should  not  be  allowed  to  impede 
their  use  for  more  appropriate  purposes.  The  courts  ultimately 
decided  against  the  telephone  authorities,  declaring  in  substance 
that  they  had  no  paramount  rights  in  the  public  ways  over  those 
of  persons  who  wished  to  use  them  for  transportation  purposes. 
In  accordance  with  this  view,  the  electric  street  railways  had  at 
least  as  good  a  claim  to  the  use  of  the  earth  to  complete  their 
circuits  as  had  the  telegraph  administration.  The  effect  of  the 
decision  would  have  been  to  require  the  telegraph  authorities  to 
protect  their  telephone  lines  against  the  perturbing  influence  of 
the  power-circuit  undertakings  by  introducing  metallic  circuits 
at  their  own  expense.  But  events  moved  too  rapidly  to  permit 
this  case  to  exercise  any  important  influence  over  the  determina- 
tion of  the  relations  between  the  two  branches  of  the  electrical 
industry  in  the  public  ways  in  Germany. 

Another  conflict  occurred  in  Breslau.  In  that  city  the  growth 
of  the  telephone  business  had  brought  about  such  a  congestion 
of  overhead  wires  that  in  1889  the  telephone  authorities  deter- 
mined to  secure  relief  by  putting  them  underground.  This  change 
had  already  been  made  in  Berlin  and  Hamburg.  In  each  city  the 
municipal  authorities,  whose  consent  was  necessary  in  order  that 
the  telephone  authorities  might  dig  up  the  pavements,  had  granted 
their  consent  under  conditions  that  were  satisfactory  to  the  tele- 
phone authorities.1  The  former  could  perceive  the  utility  of 
putting  the  telephone  wires  underground  as  well  as  could  the 
latter.  But  in  Breslau  the  situation  was  more  complicated.2 

The  interests  of  that  city,  as  of  the  others,  required  that  the 
local  authorities  should  maintain  control  of  their  streets  in  order 
that  the  work  of  the  telephone  administration  might  not  be  allowed 
to  hamper  their  own  program  of  work.  This  consideration  was 
especially  important  in  Breslau  because  the  municipal  authorities 
were  then  contemplating  the  establishment  of  a  municipal  electric 
lighting  plant.  The  necessity  of  reserving  such  control  became 
even  more  apparent  when  in  the  following  year,  1890,  a  proposal 

1  Ergebnisse  R.  P.  T.,  1886-90. 

*  Verwaltungs-Berickt  der  Stadt  Breslau  fUr  die  Periods  1889-92,  pp.  554-55, 
557-60. 


86  PUBLIC  OWNERSHIP  OF  TELEPHONES 

to  establish  an  electric  street  railway  came  up  for  consideration. 
The  operation  of  street  railway  circuits  in  the  same  streets  in 
which  grounded  telephone  wires  were  buried  would  seriously 
impede  the  operation  of  the  latter.  The  special  arrangements 
which  would  be'  required  of  the  street  railway  promoters  in  order 
to  protect  the  telephones  would  increase  materially  the  cost  of 
their  undertaking.  The  municipal  authorities  wished  to  protect 
the  promoters  against  such  extraordinary  charges,  for  their  effect 
would  be,  in  one  way  or  another,  to  make  less  favorable  to  the  city 
of  Breslau  the  terms  on  which  an  electric  street  railway  would  be 
established. 

The  municipal  authorities  kept  these  considerations  in  mind 
when  they  opened  negotiations  with  the  telephone  administration, 
although,  of  course,  they  also  desired  that  the  latter  should  be 
able  to  give  as  good  telephone  service  as  possible.  An  agreement 
which  seemed  to  settle  all  the  points  in  question  was  made  with 
the  local  telephone  officials,  but  was  rejected  by  the  superior 
telegraph  authorities  on  the  ground  that  it  was  in  violation  of 
their  rights.  Thereupon  the  municipal  authorities  broke  off  the 
negotiations.  Not  until  after  the  installation  of  a  municipal  elec- 
tric lighting  plant  had  been  determined  upon,  and  arrangements 
concluded  for  the  construction  of  the  electric  street  railway,  did 
the  municipal  authorities  signify  their  willingness  to  reopen  nego- 
tiations with  the  telegraph  authorities.  By  that  time  the  latter 
were  willing  to  accept  the  most  favorable  terms  that  should  be 
obtainable. 

The  agreement  between  the  city  of  Breslau  and  the  imperial 
telegraph  administration  was  concluded  July  28,  1891.  The  city, 
on  its  part,  bound  itself  so  to  lay  its  electric  light  cables  as  to  keep 
the  current  removed  as  far  as  possible  from  telephone  cables 
which  should  have  been  previously  placed  underground.  All 
special  work,  which  should  be  required  in  order  to  protect  tele- 
phone circuits  from  [disturbance  by  either  later  or  preexisting 
electric  lighting  circuits,  should  be  executed  by  the  telegraph 
authorities  and  should  be  performed  on  whichever  circuits  should 
be  more  convenient.  The  incidence  of  the  costs  which  should  arise 
in  connection  with  such  works  should  be  divided  between  the 


THE  ACT  OF  1892  87 

respective  parties  according  as  the  power-circuits,  giving  rise  to  dis- 
turbances on  the  telephone  lines,  were:  (i)  electric  lighting  cir- 
cuits of  any  sort  already  laid  or  under  consideration  at  the  time 
of  the  agreement;  (2)  electric  lighting  circuits  owned  by  the  muni- 
cipality which  should  be  laid  thereafter;  (3)  electric  lighting  cir- 
cuits owned  by  private  individuals  which  should  be  laid  there- 
after for  the  purpose  of  lighting  the  public  ways;  and  (4)  the  same, 
which  should  be  laid  thereafter  for  the  purpose  of  delivering  cur- 
rent for  private  illumination.  In  cases  one  and  two,  the  telegraph 
authorities  were  to  bear  the  entire  cost  of  protecting  their  circuits. 
In  cases  three  and  four,  the  incidence  of  the  costs  should  vary 
according  as  the  disturbing  circuits  should  be  installed  before  or 
after  the  cables  of  the  telegraph  authorities.  In  the  former  alter- 
native the  telegraph  authorities  should  bear  two  thirds  of  the  costs 
in  case  three,  and  one  third  in  case  four.  In  the  latter  alternative 
they  should  bear  one  third  of  the  cost  in  case  three,  and  in  case 
four  the  entire  costs  should  be  borne  by  the  private  interests  con- 
cerned. The  same  conditions  were  to  apply  also  to  electric  street 
railway  circuits. 

This  agreement  marked  the  complete  breakdown  of  the  tele- 
graph administration's  policy  of  protecting  its  telephone  system. 
In  1890,  out  of  all  the  2,615  electrical  undertakings  which  were 
using  the  public  ways,  only  thirty-five  cases  of  disturbance  with 
the  telephone  were  reported.1  In  six  of  these  cases  the  cause  of 
the  disturbance  was  attributable  to  noncompliance  with  the 
regulations  of  the  telegraph  administration.2  After  the  adoption 
of  a  refractory  attitude  towards  the  regulations  by  the  municipal 
authorities  at  Halle  and  Breslau,  this  cause  of  disturbance  of  the 
telephones  was  certain  to  increase.  Clearly,  with  the  further 
growth  of  electrical  undertakings  of  all  kinds  and  especially  with 
the  introduction  of  electric  street  railways,  the  department,  by 
virtue  of  administrative  order  alone,  could  no  longer  hope  to 
restrain  the  power-circuit  undertakings  from  using  the  earth  to 
complete  their  circuits,  nor  assess  upon  them  all  the  costs  of  pro- 

1  A.  P.  T.,  1890,  pp.  610-11.  Cf.  also,  Drucksachen  des  Rekhstages,  8.  Leg.-Per., 
i.  Session,  Nr.  308. 

2  J.  T.  1891,  pp.  24,  58. 


88  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tec  ting  the  telephone  circuits  against  disturbance  by  induction. 
The  more  ample  powers  which  had  become  indispensable  could 
be  obtained  only  from  the  Reichstag. 

There  was  another  reason  for  seeking  legislation  from  the 
Reichstag  at  this  time.  The  telegraph  administration's  exclusive 
right  to  conduct  a  public  telephone  business  had  itself  been  chal- 
lenged. This  right,  or  rather  the  fundamental  right  on  which  this 
was  based,  the  monopoly  of  the  telegraphs  themselves,  had  always 
been  a  topic  for  debate  between  writers  on  German  constitutional 
and  administrative  law.1  With  the  increase  of  the  use  of  the  tele- 
phone for  private  purposes,  the  number  of  cases  also  increased  in 
which  the  telegraph  administration's  assumption  of  monopoly 
was  irksome,  and  the  determination  of  the  legality  of  the  telegraph 
administration's  claims  became  of  immediate  importance.  The 
legality  of  the  assumption  of  the  telegraph  authorities,  that  the 
telephone  was  a  telegraph  within  the  meaning  of  the  German 
constitution,  had  been  given  practical  effect,  at  least  throughout 
the  greater  portion  of  the  imperial  telegraph  area,  by  two  circu- 
lars issued  by  the  Prussian  Minister  of  the  Interior,  one  October 
27, 1880,  the  other  September  15, 1882.  These  circulars  instructed 
the  Prussian  state  police  to  proceed  at  once  against  any  persons 
who  should  erect  telephone  lines  without  the  consent  of  the  tele- 
graph authorities.  The  validity  of  these  orders,  however,  rested 
on  the  assumption  that  the  telephone  was  in  law  a  telegraph. 
A  case  was  made  up  and  the  point  was  determined  by  a  decision 
of  the  imperial  supreme  court  in  1889  in  favor  of  the  telegraph 

1  H.  Horch:  "Die  verwaltungsrechtlichen  Grundlagen  des  Telephonrechtes," 
Archivfiir  ojfentliches  Recht,  Band  VI  (1891),  pp.  138-55. 

•     F.  Meili:  Das  Telephonrecht,  1885;  Die  Telegraphen  und  Telephonen  in  ihrer  reckt- 
lichen  Bedeutung,  1892. 

The  German  imperial  telegraph  monopoly  was  contested  by: 

(a)  Laband:  Staatsrecht  des  Deutschen  Reichs,  2d  ed.,  II,  p.  68. 

(b)  Loning:  Verwaltungsrecht,  p.  611. 

(c)  Schulze:  Deutsches  Staatsrecht,  II,  p.  201. 

'    It  was  affirmed  by  Zorn:  Deutsches  Staatsrecht,  II,  p.  17. 

An  excellent  discussion  of  the  legal  status  of  the  German  state  telegraph  is  con- 
tained in  H.  Stephan:  Geschichte  der  preussischen  Post  von  ihrem  Ursprunge  bis  auf 
die  Gegenwart,  Berlin,  1859,  pp.  675  ff.  In  1890,  Stephan  was  at  the  head  of  the  Ger- 
man postal  and  telegraph  service. 


THE  ACT  OF  1892  89 

authorities.1  The  effect  of  this  decision  was,  however,  simply  to 
divert  the  attack  from  the  telephone  to  the  telegraph  monopoly 
itself.  The  imperial  constitution  was  not  explicit  on  this  point. 
It  contained  no  express  grant  of  monopoly,  but  the  telegraph 
administration  construed  as  a  grant  of  monopoly  the  clause  which 
declared  that  the  telegraph  system  should  be  uniform  throughout 
the  empire.  In  a  test  case  decided  July  10,  1890,  by  the  court 
of  first  instance,  it  was  held  that  under  the  German  constitution 
the  public  authorities  possessed  no  exclusive  monopoly  of  the 
telegraphs.2  This  decision,  if  confirmed  by  the  upper  courts, 
would  have  seriously  impeded  the  efforts  of  the  telegraph  authori- 
ties to  maintain  a  uniform  system  throughout  the  empire. 

Accordingly,  the  telegraph  administration  did  not  await  the 
result  of  an  appeal  of  the  test  case  to  the  higher  courts,  but  pre- 
pared to  secure  at  once  from  the  Reichstag  both  the  confirmation 
of  the  telephone  monopoly  and  the  power  to  restrain  the  power- 
circuit  electrical  interests  from  inflicting  damages  on  the  telephone 
system  for  which  they  would  not  pay.  The  drafts  of  two  proposed 
laws  intended  to  secure  these  objects  were  published  early  in  the 
year  1891. 3 

The  first  of  these  bills  declared  the  operation  of  telegraphs  and 
telephones  to  be  a  governmental  monopoly,  but  made  provision 
for  the  construction  of  private  lines  in  certain  cases  in  which  they 
had  been  previously  permitted  by  special  regulations.  The  second 
bill  reserved  to  the  Bundesrat  the  right  to  make  police  regulations 
for  the  purpose  of  controlling  the  construction  and  operation  of 
electrical  undertakings  in  general.  It  was  expressly  provided  that 
electrical  conductors,  which  should  thereafter  be  erected  on  public 
ways,  should  be  so  constructed  as  not  to  interfere  with  the  oper- 
ation of  previously  existing  electrical  installations,  nor  render 
impossible  the  use  of  the  public  ways  for  the  later  erection  of 
electric  telegraphs,  telephones,  or  other  public  signal  systems. 

1  A.  P.  T.,  1889,  pp.  398-404. 

*  "Erkenntniss  des  Landesgerichts  I  zu  Berlin  von  10  Juli,  1890:"  Archiv  fiir 
8/entliches  Recht,  Band  VI  (1891),  pp.  535-55.  Cf.  Drucksachen  des  Reichstages,  8. 
Leg.-Per.,  i.  Session,  Nr.  308.  l  { 

1  Reichsanzeiger,  Jan.  22,  1891.  Cf.,  also,  Eleklrotechnische  Zeitschrift,  1891, 
PP-55,  "7- 


QO  PUBLIC  OWNERSHIP  OF  TELEPHONES 

To  insure  the  proper  enforcement  of  this  provision,  it  was  further 
proposed  that  thereafter  no  electrical  undertaking  should  be  con- 
structed without  the  preliminary  approval  of  the  administrative 
authorities.  Differences  as  to  the  extent  of  protection  against 
power-circuit  undertakings  that  might  arise  between  the  tele- 
phone authorities  and  the  central  police  authorities  in  any  state 
of  the  empire  should  be  settled  ultimately  by  the  Bundesrat. 

This  bill,  if  enacted,  would  have  given  the  telegraph  authori- 
ties ample  power  for  the  protection  of  all  their  telephone  lines, 
both  those  already  in  operation  and  those  to  be  constructed  later. 
The  telegraph  administration  would  have  been  enabled  not  only 
to  prevent  the  erection  of  power-circuits  in  the  vicinity  of  its  own 
grounded  lines,  or  to  grant  permission  only  under  conditions  that 
would  have  protected  the  telephones  at  the  cost  of  the  other 
undertakings,  but  also  to  do  the  same  in  places  where  there  was 
at  that  time  neither  a  telephone  line  in  existence  nor  any  immedi- 
ate likelihood  of  there  being  one.  The  telephone  authorities  clearly 
intended  never  again  to  get  into  such  difficulties  as  had  arisen  at 
Halle,  nor  to  be  forced  into  another  agreement  like  that  which 
they  already  foresaw  would  result  from  the  negotiations  at  Breslau. 
The  first  bill  quickly  passed  the  Bundesrat,  and  on  February  22 
reached  the  popular  branch  of  the  imperial  legislature,  the  Reichs- 
tag. There  it  was  met  with  a  storm  of  opposition.1 

The  whole  electrical  industry  of  Germany  was  aroused.  It 
would  not  consent  without  a  struggle  to  the  perpetuation  of  the 
conditions  imposed  on  the  power-circuit  undertakings  for  the 
purpose  of  protecting  the  governmental  telephones,  nor  did  it 
relish  the  prospect  of  being  compelled  to  bear  all  the  expense  of 
re-adjusting  the  telephone  system  to  the  altered  conditions  that 
would  be  brought  about  by  the  further  growth  of  power-circuit 
undertakings.  The  greatest  pressure  was  brought  to  bear  upon  the 
special  committee  to  which  the  bill  was  submitted,  March  9,  1891, 
for  more  careful  consideration,  in  order  to  secure  its  amendment 
or  rejection.  The  representatives  of  the  power-circuit  interests 

1  "Bericht  der  XVI.  Kommission  iiber  den  Entwurf  eines  Gesetzes  iiber  das 
Telegraphenwesen  des  Deutschen  Reichs."  Nr.  460  der  Drucksachen,  8.  Leg.-Per., 
i.  Session,  4.  Anlageband,  1891. 


THE  ACT  OF  1892  91 

had  sufficient  strength  to  prevent  the  acceptance  of  this  first  bill 
unless  assurance  were  given  that  the  second  would  be  so  modified 
as  to  be  more  acceptable  to  their  branch  of  the  electrical  industry. 
The  president  of  the  German  Handelstag  sent  out  a  circular  letter 
to  every  chamber  of  commerce  in  the  empire,  calling  especial 
attention  to  the  probable  results  of  the  proposed  legislation  in  the 
electrical  industry.1  He  gave  force  to  his  warning  by  pointing  out 
the  difficulties  that  had  already  arisen  in  those  cities  which  had 
undertaken  the  pioneer  work  of  introducing  the  electric  street  rail- 
way. He  urged  all  chambers  to  rally  in  the  support  of  an  amend- 
ment to  the  bill  which  should  require  the  telegraph  authorities, 
as  far  as  possible,  to  protect  the  telephone  at  their  own  expense 
against  the  perturbing  influence  of  strong  currents  in  the  same 
public  ways,  whether  or  not  the  telephone  was  the  prior  installa- 
tion. This  outburst  of  remonstrance  was  effective.  The  committee 
of  the  Reichstag  declined  to  accept  the  proposals  of  the  govern- 
ment. In  order  to  emphasize  its  opinions,  it  held  up  the  bill  to 
confirm  the  government's  telegraph  monopoly,  although  that  bill 
had  had  no  original  connection  with  the  controversy  over  the 
use  of  the  public  ways. 

It  so  happened  that  in  the  late  autumn  of  1891  an  international 
electro-technical  congress  was  to  be  held  at  Frankfort.  The  elec- 
trical experts  of  the  entire  world  were  expected  to  attend.  Accord- 
ingly both  the  German  Association  of  Electro- technical  Engi- 
neers (Elektrotechnischer-Verein)  and  the  Chamber  of  Commerce 
at  Frankfort  petitioned  that  no  action  be  taken  concerning  the 
determination  of  the  relations  that  should  subsist  between  tele- 
phone and  power-circuit  electrical  industries  until  the  matter 
could  be  submitted  to  this  congress  for  its  expert  opinion.2  All 
parties  agreed  to  leave  the  matter  in  this  way,  and  the  Reichstag 
of  1891  adjourned  without  taking  any  further  action  on  the  tele- 
graph administration's  bills.  At  the  international  electro-tech- 
nical congress  the  relations  that  should  obtain  between  the  power- 
circuits  and  the  telephone  circuits  did  not  fail  to  receive  due 
consideration.3  It  was  at  this  congress  that  the  first  successful 

1  HGK  Oberbayern,  1891,  pp.  37-38;  HGK  Stuttgart,  1891.  pp.  40-42. 

1  Elektrotechnische  Zeitschrift,  1891,  pp.  169,  263.  *  Ibid.,  pp.  675-78. 


92  PUBLIC  OWNERSHIP  OF  TELEPHONES 

experiment  with  the  transmission  of  power  over  long  distances  was 
made.  The  concourse  of  experts  was  roused  to  a  remarkable  pitch 
of  enthusiasm  over  the  performance  of  the  big  copper  wire  that 
brought  an  electric  current  to  Frankfort  from  Lauffen-am-Neckar, 
one  hundred  miles  away.  They  were  in  no  mood  to  consent  that 
the  new  electrical  age,  which  they  believed  to  be  dawning,  should 
be  held  back  on  account  of  the  danger  to  the  telephone.  They 
recognized  that  the  early  method  of  protecting  the  telephone 
circuits  by  avoiding  the  construction  of  power-circuit  conductors 
in  close  proximity  would  no  longer  suffice  to  prevent  the  injury 
of  the  telephone  undertakings.  But  they  could  not  sanction  the 
maintenance  of  the  later  method,  the  exclusion  of  the  electric  light 
and  power  interests  from  using  the  earth  to  complete  their  cir- 
cuits. Such  a  policy  would  throw  a  heavier  burden  on  the  power- 
circuit  interests  than  it  would  remove  from  the  governmental 
telephones.  There  was  no  alternative  but  for  the  telephone  itself 
to  abandon  the  earth  to  its  stronger  rivals  and  withdraw  into  the 
protecting  folds  of  metallic  circuits. 

The  only  question  that  remained  was  whether  the  entire  cost 
of  the  change  should  be  borne  by  the  telegraph  authorities  alone 
or  should  be  apportioned  in  some  way  between  them  and  the 
power-circuit  interests.  The  electrical  experts  did  not  forget  in 
answering  this  question  that  there  was  another  reason  for  the 
introduction  of  metallic  circuits  in  the  telephone  exchange  busi- 
ness. The  same  phenomenon  of  mutual  induction  between  the 
telephone  wires  themselves,  which  had  already  made  necessary 
the  introduction  of  metallic  circuits  in  long-distance  telephony, 
was  manifesting  itself  to  an  ever-increasing  extent  in  the  local 
exchange  systems  as  the  magnitude  and  complexity  of  exchange 
operations  increased.  The  general  opinion  among  the  electrical 
experts  at  Frankfort  was  that  the  telephone  administration  would 
soon  have  to  introduce  metallic  circuits  in  local  exchange  tele- 
phony to  prevent  the  mutual  induction  of  the  exchange  lines, 
whether  or  not  the  construction  of  electric  street  railways  with  the 
overhead  trolley  and  uninsulated  rail  should  go  on.  Hence  they 
saw  no  reason  for  exacting  contributions  from  the  power-circuit 
branch  of  the  industry  towards  the  cost  of  the  transformation  of 


THE  ACT  OF  1892  93 

the  telephone  administration's  grounded  circuits  into  metallic  cir- 
cuits. In  short,  everybody  but  the  telephone  authorities  themselves 
came  to  the  conclusion  that  the  latter  alone  should  bear  the  entire 
cost  of  reconstructing  their  telephone  system  and  providing  against 
the  danger  of  inductive  disturbances  of  all  sorts  in  the  future. 

Before  any  fresh  proposals  could  be  introduced  into  the  Reichs- 
tag of  1892,  a  new  complication  was  brought  into  the  situation. 
The  municipal  authorities  had  grown  impatient  with  an  organiza- 
tion of  the  telephone  business  that  bade  fair  to  involve  them  in 
endless  strife  with  the  imperial  authorities  over  the  disposition 
they  should  make  of  their  own  highways.  In  the  fall  of  1891  the 
city  of  Cologne  inaugurated  a  movement  in  favor  of  municipal 
ownership  of  exchange  systems  combined  with  imperial  ownership 
of  the  long-distance  telephones.1  This  movement  did  not  originate 
in  dissatisfaction  with  the  existing  exchange  service  of  the  imperial 
telephone  administration,  but  in  the  desire  of  the  local  authorities 
to  obtain  complete  control  of  their  own  public  ways.2  They 
believed  that  by  that  means  alone  they  could  bring  about  per- 
manently satisfactory  relations  between  the  conflicting  interests 
in  the  electrical  industry.  This  movement  was  enthusiastically 
indorsed  by  the  German  Association  of  Municipal  Authorities 
(Stadtetag)  which  met  at  Frankfort  shortly  after  the  electro-tech- 
nical congress.3  It  declared  that  the  enactment  of  the  government's 
proposals  in  their  original  form  would  materially  impair  the  use- 
fulness of  large  portions  of  the  public  ways  for  the  purposes  of 
the  power-circuit  undertakings,  and  would  seriously  obstruct  that 
branch  of  the  electrical  industry.  Furthermore,  it  insisted  that 
the  cities  must  have  full  control  over  their  own  streets.  Finally, 
it  proposed  the  creation  of  an  independent  electrical  board,  com- 
posed of  legal  and  technical  members,  which  should  have  the 
power  to  decide  such  conflicts  of  interests  as  had  arisen  between 
the  telegraph  administration  and  the  representatives  of  the  elec- 
tric light  and  power  undertakings. 

Such  was  the  state  of  affairs  when  the  Reichstag  of  1892  resumed 

1  Elektrotecknisches  Zeitschrift,  1891,  p.  595. 

1  Cf.  Nrn.  512,  549,  570,  and  649  der  Drucksachen  des  Reichtages,  1891-92. 

»  HGK  Stuttgart,  1891,  pp.  40-42. 


94  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  discussion  of  the  project  brought  over  from  the  previous 
session.  The  proposed  legislation  was  referred  to  the  same  special 
committee  as  before.  There  the  issue  was  joined  squarely.1  The 
telephone  authorities  maintained  the  ground  they  had  always 
held,  viz.,  that  the  power-circuit  interests  should  be  required  to 
take  steps  at  their  own  expense  in  order  to  prevent  disturbance 
to  telephone  lines  already  in  operation  or  to  be  erected  later.  The 
representatives  of  the  other  branches  of  the  electro-technical 
industry,  on  the  other  hand,  demanded  that  the  law  should  re- 
quire each  interest  to  look  out  for  itself.  This  requirement  would 
have  put  all  the  work  and  expense  of  preventing  inductive  dis- 
turbances of  all  sorts  on  the  shoulders  of  the  telephone  adminis- 
tration, since  the  power-circuits  had  nothing  to  fear  from  the 
telephone.  The  telegraph  authorities  replied  that  this  was  not 
only  unfair  but  impossible,  inasmuch  as  there  was  no  cure  for  the 
ill  effects  of  powerful  currents  on  small  currents  within  their  sphere 
of  influence.  The  only  remedy  lay  in  prevention.  The  power- 
circuit  interests,  on  the  other  hand,  adhered  to  the  doctrine 
advanced  by  the  electro-technical  congress  at  Frankfort,  viz.,  that 
adequate  protection  could  be  obtained  for  the  telephone  by  the 
introduction  of  metallic  circuits.  The  electro-technical  interests 
won  over  the  majority  of  the  committee  to  their  view.  The  tele- 
graph authorities  saw  themselves  forced  to  yield  a  part  of  their 
claims  in  order  to  save  the  rest.  Thus  the  controversy  ended  in 
the  only  way  such  a  controversy  could  end,  by  compromise. 

It  was  agreed  that  the  first  undertakings  to  be  established  in 
any  public  way  should  be  entitled  to  remain  undisturbed  by  later 
installations.  Consequently,  the  promoters  of  the  latter  were  put 
under  obligations  so  to  carry  out  their  projects  as  not  to  interfere 
with  the  operation  of  the  former.  If  this  should  not  be  altogether 
feasible  and  the  alteration  of  an  existing  undertaking  should  be- 
come necessary  in  order  to  protect  it  from  a  later  installation,  the 
entire  expense  of  the  alteration  should  be  borne  by  the  promoters 

1  "Zweiter  Bericht  der  XVI.  Kommission  des  Reichstages  iiber  den  derselben  zur 
nochmaligen  Berichterstattung  iiberwiesenen  Entwurf  ernes  Gesetzes  uber  das 
Telegraphwesen  des  Deutschen  Reichs."  Nr.  676  der  Drucksachen,  8.  Leg.-Per., 
2.  Session,  6.  Anlageband,  1892. 


THE  ACT  OF  1892  95 

of  the  latter.  An  attempt  to  compel  the  telephone  administration 
to  equip  with  metallic  circuits  all  exchange  lines  which  should  there- 
after be  constructed  or  forfeit  its  claim  for  compensation  in  case 
of  disturbance  by  a  later  installation,  did  not  meet  with  success. 
The  telephone  administration  insisted  on  having  its  hands  left 
free  in  respect  to  future  construction.  When  the  most  important 
point  had  thus  been  settled  by  compromise,  the  attempt  of  the 
two  branches  of  the  electrical  industry  to  come  to  terms  could  not 
be  allowed  to  break  down  on  account  of  disagreement  on  the 
other  points  at  issue.  These  were,  should  the  telegraph  authori- 
ties receive  the  sanction  of  law  for  their  claims  (i)  to  the  exclusive 
right  to  erect  and  operate  telegraphs  and  telephones,  and  (2)  to 
the  privilege  of  using  public  ways  belonging  to  local  authorities 
for  the  purpose  of  maintaining  their  telegraph  and  telephone 
system. 

The  first  of  these  did  not  prove  difficult.  All  parties  were  ready 
to  acknowledge  the  principle  of  a  governmental  monopoly  of  the 
telegraphs  and  telephones  provided  that  in  practice  there  was 
security  of  its  satisfactory  exercise.  This  was  assured  by  a  con- 
cession on  the  part  of  the  telegraph  authorities.  They  consented 
that,  in  case  they  should  refuse  to  establish  or  maintain  an  ex- 
change in  any  locality,  the  local  authorities  might  demand  a  con- 
cession for  the  establishment  of  a  local  exchange  system  on  their 
own  account.  The  imperial  authorities  should  be  bound  to  accede 
to  such  a  demand,  and  might  also  at  their  own  option  grant  con- 
cessions authorizing  the  establishment  of  local  exchange  systems 
by  private  enterprise.  They  were  only  bound  to  grant  concessions, 
however,  when  the  systems  were  to  be  owned  by  the  municipal 
authorities.1  Besides  this,  telephone  undertakings  might  be  estab- 
lished without  the  approval  of  the  imperial  authorities  (i)  for 
the  use  of  public  officials  of  all  kinds,  (2)  in  connection  with  the 
operation  of  transportation  systems,  and  (3)  by  private  persons 
within  the  limits  of  their  own  property  or  to  connect  several 
properties  belonging  to  the  same  person,  and  situated  not  more 

1  No  application  has  ever  been  made,  either  by  local  authorities  or  by  private 
persons,  for  the  establishment  of  a  public  exchange  system  under  this  clause.  It 
consequently  has  had  no  more  than  a  moral  effect. 


96  PUBLIC  OWNERSHIP  OF  TELEPHONES 

than  twenty-five  kilometers  distant  from  one  another.   Such  pri- 
vate undertakings,  however,  might  not  be  open  to  public  use. 

The  second  point  was  passed  over  in  silence.  No  formal  agree- 
ment could  have  been  reached  at  that  time  in  regard  to  the  con- 
flicting claims  of  the  telegraph  and  local  authorities  concerning 
their  respective  rights  over  the  public  ways.  The  former  would 
never  have  consented  to  the  surrender  of  their  assumed  privilege 
of  using  the  public  ways  at  their  own  pleasure,  and  the  latter  would 
never  have  consented  to  the  recognition  of  such  a  claim.  The  most 
serious  sources  of  dispute  between  the  two  in  respect  to  the  use  of 
the  public  ways  were  already  removed  by  the  preceding  compro- 
mises. It  was  tacitly  agreed  on  both  sides  not  to  imperil  the  fruits 
of  the  entire  negotiations  by  insisting  on  this  point.  The  future 
difficulties  that  might  arise  were  left  to  be  disposed  of  by  the 
courts.  This  delicious  uncertainty  satisfied  both  parties  and,  to- 
gether with  the  other  results  of  the  long  parliamentary  struggle, 
was  given  the  force  of  law  by  the  act  of  April  6,  1892. l 

1  Fischer:  "Das  neue  deutsche  Telegraphengesetz."  Jh.  fur  Geselzgebung,  Ver- 
waltung,  und  Statistik,  16.  Jahrgang  (1892),  3.  Heft,  pp.  1-44. 

Maas:  "Der  staats-  und  verwaltungsrechtliche  Inhalt  des  Reichstelegraphen- 
gesetzes."  Archiv  fur  o/entliches  Rechl,  1892,  pp.  479-508. 


CHAPTER  VH 

THE  RELATIONS  BETWEEN  THE  TELEPHONE  AND  OTHER  BRANCHES 
OF  THE  GERMAN  ELECTRICAL  INDUSTRY  AFTER  THE  ACT  OF   1892 

BY  this  act  the  telegraph  authorities  were  deprived  of  a  part  of 
their  previous  pretensions.  They  retained  sufficient  powers,  how- 
ever, to  enable  them  to  protect  their  urban  telephone  systems 
without  introducing  metallic  circuits  at  their  own  cost.  For  the 
telephone  had  almost  everywhere  occupied  the  public  ways  before 
the  arrival  of  the  power-circuit  undertakings.  Consequently  the 
cost  of  protecting  the  telephones  would  fall  after  the  act  of  1892, 
as  before,  to  the  share  of  the  latter  interests.  Thus  the  telephone 
authorities  gained  the  substance,  if  not  the  letter,  of  their  conten- 
tion. On  the  whole,  however,  the  telephone  authorities  seem  to 
have  used  their  power  with  moderation.  They  did  not  demand 
that  the  street  railways  be  excluded  from  the  use  of  the  earth 
altogether,  as  was  done,  for  example,  in  Hungary  in  1889.*  There 
the  local  street  railway  in  Budapest  was  required  to  insulate  its 
current  by  the  construction  of  a  complete  metallic  circuit  placed 
in  a  conduit  under  the  rail.  The  result,  to  be  sure,  was  the  preven- 
tion of  disturbance  to  the  telephone  system,  but  at  the  expense 
of  a  disproportionate  increase  of  the  cost  of  construction  of  the 
street  railway.  The  promoters  of  the  latter  could  have  accom- 
plished the  same  result  at  less  expense  by  installing  the  metallic 
circuits  in  the  telephone  system  itself  instead  of  in  their  street 
railway.  The  German  street  railway  interests,  however,  found 
ways  of  preventing  interference  with  the  telephones  even  cheaper 
than  that  of  reconstructing  the  local  exchange  systems  at  their 
own  expense  on  the  basis  of  metallic  circuits.  They  continued  to 
construct  their  railways  with  an  overhead  feed  wire  and  to  use 
the  uninsulated  rails  to  complete  the  circuit.  The  latter,  how- 

1  Brit.  Docs.,  Parl.  Papers ;  Report  from  the  Joint  Committee  on  Electric  Powers 
(Protective  Clauses).  House  of  Lords,  Sessional  Papers,  1893-94,  X.  Qs.  460-88, 
578-83. 


98  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ever,  were  connected  by  copper  bonds  which  made  the  return 
route  through  the  rails  one  of  comparatively  low  resistance.  The 
result  was  to  diminish  the  amount  of  stray  ground  current  and  to 
make  more  adequate  the  protection  of  the  single  wire  telephone 
circuits,  simply  by  placing  them  as  far  as  possible  away  from  the 
stronger  current. 

Thus  the  German  local  telephone  business  continued  to  be 
conducted  on  the  basis  of  grounded  circuits.  As  the  number  of 
telephone  lines  in  any  locality  increased,  this  method  gave  rise 
to  more  and  more  mutual  induction  between  the  telephone  wires 
themselves.  Conversations  taking  place  over  one  line  could  be 
more  or  less  distinctly  heard  over  neighboring  lines.  Local  tele- 
phone users  began  to  grow  discontented  with  this  sort  of  service 
and  to  demand  the  introduction  of  technical  improvements  that 
would  insure  quiet  lines.1  The  only  technical  improvement  that 
would  insure  this  was  the  metallic  circuit.  Now  that  the  possi- 
bility of  compelling  the  power-circuit  interests  to  bear  the  cost 
of  the  introduction  of  metallic  circuits  in  the  telephone  system 
had  become  remote,  the  telephone  authorities  were  compelled  to 
face  the  question  of  undertaking  the  task  at  their  own  expense. 
The  effect  would  be  an  increase  of  the  cost  of  telephony  which 
could  be  met  only  by  an  increase  of  rates.  Thus  the  telephone 
authorities  were  placed  in  a  dilemma.  Either  they  must  irritate 
a  large  portion  of  their  subscribers  by  declining  to  improve  the 
service  in  the  big  cities  or  they  must  irritate  them  by  raising  the 
rates  in  order  to  make  the  improvement  possible.  They  were 
assisted  out  of  this  dilemma  by  the  judicial  decision  of  their  old 
conflict  with  the  municipal  authorities. 

The  latter  had  never  ceased  stoutly  to  protest  against  the  claim 
of  the  telegraph  authorities  to  use  the  public  ways  at  their  dis- 
cretion for  telegraph  and  telephone  purposes.  In  some  cases  the 
exercise  of  this  claim  had  been  exceedingly  vexatious  to  the  muni- 
cipalities.2 The  city  of  Bonn,  for  example,  built  an  iron  bridge  over 

1  Ergebnisse  RPT,  1891-95,  pp.  56-57,  refers  to  these  complaints  as  becoming 
more  numerous  in  the  HGK  reports. 

2  Bericht  der   XIV.  Kommission  iiber  den  Entwurf  eines  Telegraphenwege- 
gesetzes,  Drucksachen  des  Reichstages,  10.  Leg.-Per.,  1898-1900,  4.  Anlageband, 
Beilage  i. 


AFTER   THE  ACT  OF  1892  99 

the  Rhine  entirely  at  its  own  expense.  In  1897,  when  the  bridge 
was  still  under  construction,  the  telegraph  authorities  proposed  to 
make  use  of  it  when  completed  for  the  purpose  of  carrying  tele- 
phone lines  across  the  river.  At  that  time  telephone  connection 
between  Bonn  and  places  on  the  opposite  bank  of  the  Rhine  was 
effected  by  way  of  Cologne.  The  municipal  authorities  of  Bonn 
consented  to  such  use  of  their  bridge  by  the  telegraph  authorities 
on  consideration  of  the  payment  of  a  small  annual  fee,  provided 
the  latter  would  agree  to  remove  their  lines  when  desired.  The 
latter  refused  to  accept  this  condition.  The  municipal  authorities 
wanted  the  direct  telephone  connection  with  the  other  bank  and 
accordingly  abandoned  their  fee  and  proviso.  They  asked  merely 
for  the  assurance  that  the  telephone  authorities  would  not  oppose 
the  subsequent  installation  on  the  bridge  of  any  municipal  elec- 
trical undertaking  and  would  defray  the  cost  of  protecting  their 
telephone  cables  from  disturbance  by  any  subsequent  municipal 
electrical  undertaking.  This  assurance  was  likewise  declined  by 
the  telephone  authorities  on  the  ground  that  it  would  be  in  viola- 
tion of  their  rights  under  the  law  of  1892. 

At  that  time  the  city  of  Bonn  was  contemplating  the  construc- 
tion of  a  municipal  electric  railway  over  the  bridge.  But  if  the 
telephone  authorities  were  to  insist  on  exercising  their  privilege 
of  determining  what  measures  should  be  taken  for  the  protection 
of  their  telephone  lines,  and  if  they  should  decide  that  no  protec- 
tion would  be  adequate  against  an  electrical  railway  on  an  iron 
bridge,  the  municipal  authorities  would  have  to  abandon  their 
project.  If  the  position  thus  assumed  by  the  telephone  authorities 
were  tenable,  the  city  of  Bonn  might  be  forever  prevented  from 
using  its  own  bridge  for  its  own  electrical  undertakings.  More- 
over, the  telephone  authorities  declined  to  lay  their  telephone 
cables  in  the  bed  of  the  river.  Consequently  the  municipal  author- 
ities were  forced  to  accept  the  alternative,  which  was  to  dispense 
with  direct  telephone  connection  with  the  other  bank  of  the  Rhine. 
But  it  was  not  certain  that  they  would  even  be  allowed  to  exer- 
cise this  choice,  for  the  telephone  authorities  interpreted  the  act 
of  1892  to  mean  that  they  were  entitled  to  make  use  of  the  public 
ways  for  their  telegraph  and  telephone  lines  without  obtaining 


100  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  previous  consent  of  the  local  authorities.  Consequently  they 
would  consider  themselves  to  be  acting  within  their  rights  by 
erecting  their  telephone  lines  on  the  bridge  even  against  the  wish 
of  the  local  authorities  and  by  forbidding  the  latter  thereafter  to 
come  on  the  bridge  with  their  own  electrical  installations. 

This  situation  was  intolerable.  It  was  destined,  however,  to 
be  shortly  terminated.  In  1894  the  city  of  Breslau,  which  was 
determined  to  carry  to  the  end  its  fight  with  the  telegraph  authori- 
ties, brought  its  case  before  the  courts.  It  wished  to  know  whether 
the  telegraph  authorities  had  any  right  to  make  use  of  the  muni- 
cipal highways  without  the  permission  of  the  municipal  authori- 
ties, and  asserted  for  its  part  that  the  claim  of  the  telegraph 
authorities  was  as  unfounded  in  law  as  it  was  unreasonable  in  fact. 
This  case  was  fought  through  all  the  lower  courts  and  decided  by 
the  Supreme  Court  of  the  empire  on  September  21,  1898.*  The 
decision  was  in  favor  of  the  city  of  Breslau.  Thereafter  telegraph 
and  telephone  lines  existed  in  the  public  ways  only  on  the  sufferance 
of  the  local  authorities. 

The  new  situation  was  as  intolerable  to  the  telegraph  administra- 
tion as  the  old  had  been  to  the  municipal  authorities.  The  former 
had  no  alternative  but  to  ask  the  Reichstag  for  legislation  in  order 
to  establish  a  securer  tenure  for  its  telegraph  and  telephone  sys- 
tems. At  the  same  time  it  saw  the  wisdom  of  re-adjusting  the 
financial  basis  of  its  telephone  undertaking  in  order  to  make 
possible  the  technical  improvements  which  it  would  be  folly  to 
postpone  longer.  On  January  i,  1898,  of  the  325,250  local  tele- 
phone connections  of  the  American  Bell  Telephone  Company, 
146,394,  or  about  45%,  were  equipped  with  metallic  circuits.  In 
Germany  practically  none  was  so  equipped.2  The  change  from 
grounded  to  metallic  circuits  would  bring  a  number  of  advantages: 
it  would  relieve  the  mutual  induction  of  the  telephone  lines  them- 
selves ;  it  would  relieve  most  of  the  trouble  caused  by  the  proximity 
of  large  currents;  it  would  improve  the  quality  of  long-distance 

1  Die  Rechtsprechungen  des  Reichs-  und  Kammergerichtes  auf  den  Gebieten  des 
d/entlichen  Rechts,  herausgegeben  von  v.  Kamptz  und  Delius,  vol.  ii,  Berlin,  1907, 
pp.  418-20. 

»  A.  P.  T.,  1898,  p.  750. 


AFTER  THE  ACT  OF  1892  IOI 

telephony,  so  far  as  the  latter  was  operated  in  conjunction  with 
local  lines.  The  telephone  administration  accordingly  drew  up  a 
plan  for  the  conversion  of  all  its  large  urban  exchanges  from 
grounded  to  metallic  circuits.  The  work  was  to  be  completed 
within  eight  years  and  should  be  begun  at  once  in  the  leading 
commercial  centers.  At  the  same  time  it  resolved  to  ask  Parlia- 
ment to  sanction  the  necessary  revision  of  telephone  rates1  and 
to  grant  the  necessary  powers  for  the  use  of  the  public  ways. 

It  was  well  understood  that  the  telephone  authorities  could  not 
secure  statutory  rights  of  way  over  the  municipal  property  with- 
out making  concessions  in  return.  It  was  equally  well  understood 
that  these  concessions  should  take  the  form  of  a  relaxation  of 
the  privileges  which  the  telephone  authorities  had  received  under 
the  act  of  1892  for  the  protection  of  their  telephone  system  from 
subsequent  power-circuit  installations.  During  the  half  dozen  of 
years  that  had  since  elapsed,  both  the  total  number  of  fresh  instal- 
lations and  the  number  owned  by  the  municipalities  had  greatly 
increased.2  In  1899  every  city  of  over  50,000  inhabitants,  most 
of  those  of  between  40,000  and  50,000,  and  many  smaller  cities, 
were  supplied  with  street  railways.  Of  these  threescore  or  more, 
only  19  were  actually  owned  by  the  municipalities  in  which  they 
were  located  and  only  10  were  operated  by  the  municipal  authori- 
ties. Yet  the  tendency  was  decidedly  towards  an  increase  of 
municipal  ownership  of  street  railways,  and  many  cities  which  in 
1899  did  not  yet  own  the  local  undertakings  were  considering 
plans  for  their  acquisition.  Municipal  electric  lighting  plants, 
according  to  the  industrial  census  of  1895,  existed  at  that  time  in 
20  cities.  By  1899  the  number  had  greatly  increased.  Of  the  42 
largest  cities,  there  were  only  n  in  which  the  public  electric 
lighting  plant  was  in  private  hands,  and  5  others  in  which  muni- 
cipal plants  were  operated  under  lease  by  private  persons.  Public 
opinion  throughout  Germany  was  running  strongly  in  favor  of 
increasing  the  business  undertakings  of  the  municipal  authorities. 
Under  these  circumstances  the  municipalities  had  little  difficulty 
in  securing  considerable  concessions  from  the  telephone  authori- 

1  The  question  of  rates  will  be  discussed  in  a  subsequent  chapter. 

2  Statistisches  Jahrbuch  deutscher  Stadte,  Jahrgang  X. 


102  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ties  before  the  latters'  bill  was  reported  to  the  Reichstag  for  enact- 
ment by  the  committee  to  which  it  had  been  referred.  It  was 
agreed  at  once  that  the  telephone  authorities  were  to  have  the 
right  to  make  use  of  the  public  way;  the  only  question  was,  how 
much  could  the  municipality  secure  in  return  ? l 

All  parties  recognized  that  the  principle  of  the  compromise  of 
1892  was  defective.  The  requirement  that  when  two  electrical 
undertakings  came  into  injurious  proximity  on  the  public  ways 
the  later  installation  should  defray  the  cost  of  all  measures  re- 
quired to  protect  the  earlier,  simply  made  in  practice  the  later 
tributary  to  the  earlier.  The  more  defective  the  earlier  installa- 
tion, the  greater  the  amount  of  tribute  that  had  to  be  paid  by  the 
later.  This  principle,  however,  was  not  wholly  abandoned  in 
1899.  It  was  retained  in  the  case  where  the  telephone  was  the 
later  installation.2  The  telephone  installations  were  still  to  be 
required  not  to  disturb  preexisting  works  in  the  public  ways  under 
penalty  of  bearing  the  cost  of  suppressing  the  disturbance.  Yet 
as  there  was  little  likelihood  of  the  telephone  ever  injuriously 
affecting  any  other  electrical  installation  this  requirement  was 
of  secondary  importance.  In  the  contrary  case,  where  the  power- 
circuit  installation  was  the  later,  a  new  principle  was  introduced. 
In  this  case  the  later  installation  should  be  bound  to  refrain  from 
disturbing  the  operation  of  preexisting  telephone  circuits  only  so 
far  as  possible.  In  so  far  as  the  avoidance  of  such  disturbance 
was  impossible,  the  telephone  authorities  would  have  to  under- 
take the  further  protection  of  the  lines  affected  at  their  own  ex- 
pense. The  courts  have  since  held  that  the  telephone  authorities 
must  bear  the  expense  of  work  performed  with  a  view  to  such 
additional  protection,  even  when  performed  not  on  the  telephone 
line  but  on  the  later  power-circuit  installation.3 

1  "Bericht  der  XIV.  Kommission  tiber  den  Entwurf  eines  Telegraphenwege- 
gesetzes,"  Drucksachen  des  Reichstages,  10.  Leg.-Per.,  1899,  Nr.  498. 

2  This  provision  was  not  contained  in  the  original  draft  of  the  bill,  but  was  in- 
serted in  the  Kommission  at  the  special  request  of  the  representatives  of  the  private 
street  railway  interests.    Cf.  Mitteilungen  des  Vereins  Deutscher  Strassenbahn-  und 
Kleinbahn-Verwallungen,  January,  1900,  p.  23. 

'  Entscheidungen  des  Reichsgerichtes,  March  14,  1904.  This  was  a  case  where  a 
municipal  street  railway,  built  in  accordance  with  the  ordinary  principles  of  street 


AFTER  THE  ACT  OF  1892  103 

The  purpose  of  this  clause  was  that  the  telephone  authorities 
should  no  longer  have  the  power  to  forbid  the  installation  of 
power-circuit  undertakings  on  the  ground  that  the  result  was  to 
be  an  unavoidable  disturbance  of  their  telephone  service.  In  those 
cases,  however,  where  the  avoidance  of  disturbance  should  be 
impossible,  the  telephone  authorities  could  require  the  relocation 
or  removal  of  the  disturbing  undertaking,  provided  (a)  that 
the  utilization  of  the  way  for  the  telephone  would  be  otherwise 
impossible,  and  (b) '  that  the  disturbing  undertaking  could  be 
operated  in  some  other  place.  The  telephone  authorities  could 
require  such  relocation  both  when  their  telephone  line  was  the 
earlier  and  when  it  was  the  later  installation.  In  the  latter  case, 
however,  they  must  pay  all  the  costs.  On  the  other  hand,  under- 
takings of  public  necessity  or  serving  municipalities  as  sources 
of  revenue  (by  which  is  meant  water  and  drainage  systems,  gas 
and  electric  lighting  plants,  and  street  railways)  were  granted  a 
right  of  way  over  preexisting  telegraph  and  telephone  lines,  pro- 
vided (a)  that  the  construction  of  such  an  undertaking  would  be 
impossible,  or  rendered  very  difficult,  unless  the  telephone  line 
were  relocated;  and  (b)  that  it  was  to  be  constructed  wholly  or 
mainly  on  the  account  of  the  authority  which  maintained  the 
public  way  concerned.  Under  these  conditions  the  municipal 
authorities  could  order  the  relocation  or  removal  of  a  preexisting 
telephone  line  at  the  expense  of  the  telephone  administration. 
This  was  the  special ,  concession  obtained  by  the  municipalities, 
and  was  not  extended  to  private  persons  who  should  promote 
similar  undertakings.  Long-distance  telegraph  and  telephone 
lines,  however,  should  not  be  relocated  at  the  order  of,  local  au- 
thorities if  such  relocation  would  entail  disproportionately  high 
costs.1 

railway  construction  but  in  such  a  manner  as  to  interfere  with  the  operation  of  a 
preexisting  telephone  line  as  little  as  possible,  still  interfered  with  the  exposed  line. 
Some  special  appliances  to  relieve  the  disturbance  were  installed  on  the  street  rail- 
way, and  the  costs  were  assessed  by  the  courts  against  the  telephone  authorities. 

1  In  this  connection  the  late  imperial  Minister  of  Finance,  von  Sydow,  then  chief 
of  the  telegraph  and  telephone  administration,  stated  before  the  committee  that  even 
if  such  a  line  could  not  be  relocated  except  at  disproportionately  great  expense  in 
order  to  make  way  for  a  municipal  public  work,  the  telegraph  authorities  would 


104  PUBLIC  OWNERSHIP  OF  TELEPHONES 

This  somewhat  complicated  arrangement  was  given  the  force 
of  law  on  December  18,  1899. l  It  relieved  the  insupportable 
situation  which  had  been  produced  by  the  law  of  1892  and  the 
subsequent  judicial  decisions,  and  laid  the  foundation  for  good 
working  relations  between  telephone  and  power-circuit  interests 
and  between  the  telegraph  and  local  authorities.  During  the 
following  years,  notwithstanding  the  severe  industrial  depression 
which  occurred  in  Germany  in  1901-02,  the  electrical  industry 
made  great  progress.  Public  light  and  power  plants  existed  in 
1905  in  88 1  places  as  against  486  in  1900.  The  length  of  single 
track  of  electric  street  railways  increased  by  33%,  reaching  almost 
5,000  kilometers  in  1905.  This  growth  entailed  correspondingly 
greater  effort  on  the  part  of  the  telephone  authorities  to  protect 
their  telephone  system.  Careful  provision  was  made  against 
direct  contact  with  power-circuits,  fuses  were  inserted  in  all  lines 
at  the  point  of  entering  the  exchange,  and  the  disturbance  by 
induction  was  reduced  by  the  introduction  of  metallic  circuits.2 
From  the  technical  standpoint  the  results  of  the  act  of  1899  have 
therefore  been  good. 

As  might  have  been  anticipated,  however,  the  act  of  1899  nas 
given  rise  to  a  large  crop  of  litigation.3  There  was  too  much 
vagueness  about  many  of  its  provisions.  What  are  to  be  considered 
" disproportionately  high  costs,"  ''possible  alternative  locations," 
and  "  undertakings  of  public  necessity  operated  mainly  on  muni- 
cipal account"?  Yet  these  are  questions  of  detail  that  can  be 
safely  left  to  judicial  determination.4  So  far  as  concerns  the  broad 

nevertheless  yield  the  right  of  way,  if  the  local  authorities  would  bear  the  expense 
of  relocation;  provided  of  course  that  there  were  another  possible  location.  But 
von  Sydow  did  not  state  how  they  would  decide  what  were  disproportionately  high 
costs  or  possible  alternative  locations. 

1  Von  Rohr:  Das  Telegraphenwegegesetz,  Berlin,  1900.  Schelcher:  DasTelegraphen- 
wegegeselz,  Berlin,  1900. 

3  Cf .  RPT  Ergebnisse,  1901-05. 

3  Anon.:   "Die  Kollision  von  Telegraphenanlagen  mit  anderen  wirtschaftlichen 
Zwecken  dienenden  Anlagen  auf  den  Verkehrswegen:"   Annalen  des  Deulschen 
Reiches,  1904,  pp.  311-317. 

4  Cf.  Die  Rechtsprechungen  des  Reichs-  und  Kammer gerichtes  auf  den  Gebieten  des 
Qjfentlichen  Rcchls,  herausgegeben  von  v.  Kamptz  und  Delius,  vol.  ii,  Berlin,  1907, 
pp.  418-20. 


AFTER   THE  ACT  OF  1892  105 

question  of  public  policy,  the  relation  of  the  telephone  to  the 
other  branches  of  the  electrical  industry  in  Germany  may  be 
considered  settled. 

Indeed  the  German  arrangement  of  1899  possesses  some  advan- 
tages over  the  solution  of  the  same  problem  in  the  United  States. 
In  the  latter  country  the  problem  was  solved  by  the  judicial 
determination  of  the  cases  brought  before  the  courts  of  law  as  soon 
as  the  conflict  of  interest  arose.  In  the  leading  cases,  decided  in 
1890  and  1891,  the  courts  laid  down  the  principle  that  the  tele- 
phones were  not  entitled  to  favorable  treatment  on  the  public 
ways  and  should  be  required  to  protect  themselves  against  the 
disturbing  influence  of  power-circuit  installations.1 

The  German  settlement  of  1899  establishes  between  local  public 
authorities  and  the  telephone  administration  practically  the  same 
relations  as  were  created  in  America  by  the  judicial  decisions 
handed  down  at  the  beginning  of  the  decade.  The  telephone 
administration  in  Germany  is  bound  to  protect  itself  at  its  own 
expense  against  the  injurious  influence  of  all  municipal  electrical 
undertakings,  except  in  the  case  of  the  long-distance  lines  which 
cannot  be  relocated  except  at  a  disproportionately  great  expense. 
But  unlike  the  private  telephone  companies  in  America,  it  is  not 
bound  to  do  this  at  its  own  expense  in  the  case  where  a  later 
disturbing  installation  is  promoted  by  private  enterprise.  This 
exception  would  be  the  rule  in  America;  but  in  Germany,  in  the 
more  important  cities  where  the  expensive  conflicts  of  interests 
are  most  likely  to  arise,  the  majority  of  the  electrical  undertakings 
that  can  cause  disturbance  to  telephone  lines  are  in  the  hands  of 
the  municipal  authorities,  and  the  tendency  is  for  this  majority 
to  increase.  Hence,  the  disadvantages  of  the  discrimination  L^1 
against  private  enterprise  are  much  less  than  they  would  be  in  a 
country  where  private  enterprise  is  a  more  important  factor  in  3*y6* 
the  operation  of  municipal  monopolies.  The  advantage  of  the  tf 
German  arrangement  is  its  greater  flexibility.  Under  the  American  yt^-*-t>*« 
judicial  decisions  a  hard  and  fast  rule  has  been  laid  down  from  L^+*++A 

1  "  Cumberland  Telephone  and  Telegraph  Company  vs.  The  United  Electric  Rail-  /^ 
way,"  42  Fed.  Rep.  273.  "The  Cincinnati  Inclined  Plane  Railway  Company  vs.  The     s**4f9& 
City  and  Suburban  Telegraph  Association,"  Sup.  Ct.  of  Obiot  Jan.  term.  *8«T.. 


106  PUBLIC  OWNERSHIP  OF  TELEPHONES 

which  there  can  be  no  departure.  In  Germany,  where  the  public 
interest  would  be  promoted  by  the  relocation  of  a  municipal 
undertaking,  which  if  not  relocated  would  render  impossible  or 
extremely  difficult  the  establishment  of  a  desirable  telephone  line, 
a  procedure  is  provided  for  bringing  about  the  change  without 
impairing  the  equity  of  either  party. 

The  Germans,  however,  required  nearly  a  decade  to  reach  this 
result.  The  trend  of  the  judicial  decisions  in  the  United  States 
was  promptly  reported  in  the  German  technical  press,  and  was 
consequently  well  known  to  the  German  electro-technical  inter- 
ests as  well  as  to  the  telephone  administration.  The  effect  of  these 
decisions  on  the  conduct  of  the  telephone  business  was  also  well 
understood.  The  fact  that  the  telephone  company  in  Nashville 
immediately  abandoned  the  use  of  the  earth-return  and  began  the 
introduction  of  metallic  circuits  after  the  decision  of  the  first  lead- 
ing  case  was  reported  at  once  in  the  leading  German  electro- tech- 
nical journal.1  The  decision  in  the  Halle  case  was  in  line  with 
the  American  decisions,  and  would  have  forced  the  German 
telephone  administration  likewise  to  adopt  at  its  own  expense  a 
similar  technical  procedure  in  order  to  protect  its  business,  but 
or  the  legislative  compromise  of  1892. 

The  question  now  arises,  to  what  extent  was  the  development  of 
the  German  electro-technical  industry  retarded  by  the  obligation 
under  which  the  promoters  of  new  undertakings  were  placed  to 
refrain  from  the  disturbance  of  previously  erected  telephone  lines, 
or  to  defray  the  expense  of  repairing  the  damage  they  might  cause? 
A  fair  index  of  the  growth  of  the  electro-technical  industry  is 
afforded  by  the  record  of  the  annual  construction  of  central  electric 
light  and  power  stations.2 

-T         No.  of  stations  T_         No.  of  stations 

YW  *     ILI-    7     J  Ye(lr  4\T    1     J 

established  estabhshed 

1888  15  1893      31 

1889  7  1894      36 

1890  8  1895      63 

1891  13  1896      74 

1892  22  1897     106 

1  Elektrotechnische  Zeitschrift,  1890,  p.  612.  s  Ibid.,  Feb.  26,  1906. 


AFTER  THE  ACT  OF  1892  107 

1898  152  1902  84 

1899  142  1903  82 

1900  144  1904  62 

1901  94  1905  40 

Total  1175 

There  were,  moreover,  80  stations  which  were  completed  in  1905 
but  not  reported,  and  540  stations  were  under  construction.  The 
figures  do  not  include  the  block  and  private  stations,  that  is>  sta- 
tions which  made  no  use  of  the  public  ways  for  the  distribution  of 
current  to  the  public.  These  figures  show  that  the  industry  had 
scarcely  gained  a  start  before  the  enactment  of  the  compromise 
legislation  of  1892.  Then  its  rate  of  growth  was  accelerated  and 
during  the  latter  half  of  the  decade  reached  its  maximum.  After 
the  passage  of  the  more  liberal  law  of  1899,  the  rate  of  growth 
slackened  and  since  the  opening  of  the  new  century  has  been  much 
less  rapid.  If  the  number  of  arc  and  incandescent  lamps  and  the 
number  of  miles  of  electric  street  railway  in  operation  were  taken 
as  the  index  of  growth,  the  contrast  between  the  quinquennial 
periods  before  and  after  the  turn  of  the  century  would  be  less 
striking,  but  it  would  still  be  manifest.  Either  the  act  of  1899  had 
a  contrary  effect  to  that  which  was  intended,  or  the  growth  of  the 
industry  was  controlled  by  other  and  more  powerful  forces  than 
the  imperial  legislation.  It  will  soon  appear  which  is  the  true  ex- 
planation. 

The  opening  years  of  the  twentieth  century  witnessed  a  serious 
industrial  depression  in  Germany.  In  no  branch  of  industry  was 
this  depression  more  marked  than  in  the  electro- technical.1  The 
effects  are  thus  summed  up  by  a  German  electrical  engineer  writ- 
ing shortly  after  the  event:2 

"The  seven  great  companies  have  received  some  deep  wounds.  One 
has  been  compelled  to  atone  for  its  sins  in  the  realm  of  business  enter- 
prise with  its  life  (Kummer).  Others  have  been  condemned  to  pass 
their  dividends  for  several  years  on  end  (Schuckert,  Lahmeyer,  and 

1  Cf.  Schriften  des  Vereins  fttr  Socialpolitik,  vols.  105-12:  Die  Storungen  im 
dtutschen  Wirtschaftsleben  w&hrend  der  Jahre  1900  ff.;  see  esp.  vol.  107:  Die  elek- 
trotechnische  Industrie,  by  J.  Loewe. 

3  Fasolt,  p.  182. 


108  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Helios).  Most  fortunate  were  those  which  escaped  with  only  a  reduc- 
tion of  their  profits  (Siemens  and  Halske,  Union  Elektrizitats-Gesdl- 
schaft).  The  A.  E.-G.  alone  survived  unscathed.  Even  its  dividends 
had  to  be  cut." 

The  period  of  speculation  culminated  in  1900.  The  crisis  was  at 
its  worst  in  1902.  The  last  named  company  paid  15%  in  1900  and 
8%  in  1902.  Siemens  and  Halske  paid  10%  in  1900  and  4%  in 
1902.  Schuckert  paid  15%  in  1900  and  nothing  in  1902.  The  Lah- 
meyer,  Kummer,  and  Helios  companies  each  paid  1  1%  in  1900  and 
nothing  in  I9O2.1  The  effects  were  even  worse  for  the  wage  earners 
than  for  the  capitalists.  The  three  greatest  companies  of  all,  two 
of  whom  survived  the  crisis  with  no  more  than  a  temporary  dim- 
inution of  profits,  reported  the  following  number  of  employees  in 
1900  and  1902  respectively:2 

A.  E.-G.  17,361  14,897 

S.  &  H.  15,255  14,659 

Schuckert  7,413 


Total  40,029  34,921 

But  these  figures  do  not  tell  the  whole  story.  They  do  not  show  the 
number  of  workmen  employed  on  part  time,  and  take  no  account 
of  the  sudden  and  wholesale  dismissals  when  the  crisis  was  most 
acute.  Thus  Siemens  and  Halske  at  one  time  discharged  3,000  of 
their  employees.3  The  blow  was  even  heavier  for  the  higher  clerical 
and  administrative  employees  than  for  the  electrical  workmen, 
strictly  speaking.  In  the  Elektrotechnische  Zeitschrift  at  the  end  of 
1901  there  were  three  advertisements  from  higher  officials  and 
electrical  experts  out  of  employment  for  every  one  offering  it.4  Un- 
questionably the  German  electro-  technical  industry  suffered  se- 
verely. 

The  lesson  of  the  crisis  was  not  mistaken  by  the  leaders  of  the  in- 
dustry. It  was  most  lucidly  stated  by  the  greatest  of  those  leaders, 
Emil  Rathenau,  in  the  annual  report  of  October,  1902,  of  the 
A.  E.-G.5:  "The  future  importance  of  the  electrical  industry  as  a 

1  Cf.  Neumann's  Kurstdbellen. 

*  Koch:  Die  Konzentrationsbewegung  in  der  deutschen  Elektroindustric,  1907,  p.  33. 

'  Ibid.,  p.  34.  4  Ibid.,  p.  36.  *  Ibid.,  p.  92. 


AFTER  THE  ACT  OF  1892  109 

factor  in  modern  life  will  not  be  diminished  by  its  recent  calamity. 
.  .  .  But  an  improvement  will  scarcely  follow  at  once.  The  first 
task  is  to  recognize  the  existing  conditions  and  to  ascertain  the  lack 
of  adjustment  between  production  and  consumption.  This  will  be 
easier  to-day  than  a  year  ago,  since  in  the  meantime  many  events 
have  taken  place  in  sharp  contrast  to  the  earlier  hopeful  prophe- 
cies of  electrical  promoters.  What  means  should  be  adopted  in 
order  to  consolidate  our  industry,  we  have  repeatedly  made  known. 
A  narrower  cooperation  of  the  great  firms  will  scarcely  be  avoid- 
able, if  the  prices  of  our  product  are  once  more  to  be  brought  up  to 
a  remunerative  level." 

Within  a  year  Rathenau's  company  had  absorbed  the  Union 
Elektrizitats-Gesellschaft,  and  Siemens  and  Halske  and  Schuckert 
had  made  a  working  agreement  which  amounted  to  the  fusion  of 
the  most  important  branches  of  their  undertakings.  Thus  the  four 
largest  of  the  German  electrical  concerns  applied  the  lesson  of  the 
crisis.1  The  same  process  was  extended  throughout  the  industry, 
and  the  outlook  began  to  improve.  Not  so  many  new  central  light 
and  power  plants  were  built  as  formerly,  because  the  demand  for 
such  installations  was  for  the  time  being  nearly  satiated ;  but  new 
fields  for  the  electrical  industry  were  opened  up  and  a  new  period 
of  prosperity  was  ushered  in. 

The  significance  of  these  events  in  the  electrical  industry  at 
large  in  connection  with  the  management  of  the  telephone  business 
is  twofold.  In  the  first  place,  they  show  that  the  development  of 
the  industry  was  not  seriously  retarded  by  the  legislation  in  the 
interest  of  the  public  telephone  undertaking.  On  the  contrary, 
despite  the  law  of  1892,  more  electrical  undertakings  were  estab- 
lished during  the  succeeding  eight  years  than  the  German  public 
was  able  to  support.  The  business  men  whose  duty  it  was  to  esti- 
mate the  nature  and  future  growth  of  the  demand  for  electrical 
installations  blundered.  They  greatly  overestimated  the  utility 
of  their  undertakings  to  the  community.  Far  from  being  discour- 
aged by  the  burdens  laid  upon  them  by  the  law  of  1892,  they  were 
altogether  too  courageous  for  their  own  good.  During  the  second 
half  of  the  last  decade  of  the  century,  German  electro-technical 

1  Koch,  p.  92. 


110  PUBLIC  OWNERSHIP  OF  TELEPHONES 

promoters  were  fairly  swept  off  their  feet  by  the  spirit  of  specula- 
tion. Under  the  circumstances  it  is  unlikely  that  the  legislation  of 
1892  exercised  any  considerable  influence  tending  to  retard  the  de- 
velopment of  the  industry  as  a  whole,  although  in  some  individual 
cases  it  was  vexatious.  So  far  as  the  industry  in  general  was  con- 
cerned, the  forces  which  tended  to  encourage  the  fever  of  specula- 
tion greatly  outweighed  all  others. 

In  the  second  place,  the  telephone  business,  which  alone  was 
withdrawn  from  the  disastrous  competitive  struggle  of  over-san- 
guine rival  promoters,  alone  passed  through  the  crisis  absolutely 
unscathed.  Mix  and  Genest,  the  leading  manufacturers  of  tele- 
phone apparatus,  even  increased  their  dividend  during  the  critical 
period.1  The  rate  in  1900  was  10%,  in  1902  14%.  This  does  not 
mean  that  the  telephone  business  did  not  share  in  the  earlier  gen- 
eral development.  The  increase  in  the  value  of  electro-technical 
products  of  German  manufacture  from  1890-91  to  1898  was  as  fol- 
lows:2 

Class  of  Value  in  millions  of  marks        Percentage  of 

product  1890-91  1898  increase 
Dynamos,  motors, 

and  transformers  6.50  60.70  835 

Telephone  apparatus  1.75               8.50  386 

Batteries  4.50  13.00  189 

Telegraph  apparatus  1.50  3.40  127 

Incandescent  lamps  2.50  5.46  118 

Arc  lamps  2.00  3.80  90 

The  production  of  telephone  apparatus  compares  well  enough 
with  that  of  the  other  electrical  products.  The  significant  point  is 
that  the  output  of  electro-technical  articles  in  general  increased 
too  rapidly,  and  that  of  telephone  apparatus  did  not.  But  the 
former  were  sold  on  an  unregulated  market,  whereas  the  latter  was 
sold  chiefly  to  the  German  telephone  administration.  Those  pro- 
ducts for  which  the  demand  was  ascertained  by  private  business 
men,  incited  by  their  desire  for  a  profit  and  the  resulting  compe- 
ition  with  one  another,  were  over-produced.  Those  for  which  the 
1  Neumann's  Kurstabetten.  a  Fasolt,  p.  206. 


AFTER  THE  ACT  OF  1892  III 

demand  was  ascertained  by  public  officials,  aided  by  the  organized 
cooperation  of  the  consumers,  were  not  over-produced.  Private 
enterprise,  impelled  by  the  over-sanguine  estimates  of  the  com- 
petitive business  world,  made  a  mistake.  Public  enterprise,  rely- 
ing upon  the  scientific  calculations  of  an  organized  administration, 
made  no  mistake.  The  record  of  the  German  telephone  admin- 
istration in  weathering  the  industrial  depression  of  1901-02  is  a 
gratifying  indication  of  the  success  of  German  methods  of  public 
business  management. 


CHAPTER  VIII 

THE  RATE-POLICY  OF  THE  GERMAN  TELEGRAPH  ADMINISTRATION  I 
THE  THEORY  OF  REASONABLE  RATES 

WHAT  is  a  reasonable  telephone  rate? 

This  is  an  important  question.  No  matter  how  energetically  the 
management  of  a  telephone  business  may  seek  to  extend  the  ser- 
vice, no  matter  how  persistently  it  may  seek  to  improve  the  quality, 
it  cannot  secure  the  patronage  which  it  ought  to  secure  in  a  given 
community  unless  it  offers  its  service  at  reasonable  rates. 

The  management  without  doubt  is  fairly  entitled  to  a  remuner- 
ation that  will  cover  the  expenses  of  rendering  the  service.  On  this 
basis,  the  rate  which  each  telephone  subscriber  might  reasonably 
be  required  to  pay  for  his  service  would  be  proportional  to  the 
expense  of  rendering  that  particular  service.  In  order  to  establish 
such  a  schedule  of  rates,  the  management  must  have  some  method 
of  apportioning  the  total  expense  of  carrying  on  its  undertaking 
among  the  various  persons  who  partake  of  the  benefits  of  the  ser- 
vice. This  involves,  first,  the  existence  of  a  unit  of  service  which 
may  be  employed  as  the  basis  of  charge  and,  secondly,  the  possi- 
bility of  determining  accurately  the  expense  of  rendering  each  of 
these  units  of  service. 

The  expense  of  rendering  the  service  as  a  whole  can  be  easily 
reckoned,  provided  the  telephone  system  is  an  independent  under- 
taking. It  is  simply  the  sum  of  all  the  current  expenses.  These 
comprise  the  wages  and  salaries  of  employees  and  managing  force, 
the  interest  and  amortization  of  the  capital  invested  in  the  plant, 
and  the  rent  of  buildings  and  tools  which  are  hired  instead  of  being 
bought.  The  capital  ought  to  be  amortized  as  rapidly  as  the  tools 
and  material  in  which  it  has  been  sunk  wear  out.  If  the  plant  is 
maintained  in  its  original  condition  by  means  of  current  repairs, 
the  expenses  of  amortization  are  replaced  by  payments  of  wages, 
and  by  sums  set  aside  to  cover  the  depreciation  and  invested  in 
fresh  tools  and  materials.  Allowance  must  also  be  made  for  insur- 


THE  THEORY  OF  REASONABLE  RATES  113 

ance,  taxation,  payments  for  rights  of  way,  and  occasional  liabili- 
ties of  a  miscellaneous  character,  such  as  payments  on  account  of 
judgments  for  damages,  and  similar  items. 

If  the  telephone  system  is  not  an  independent  undertaking,  but 
is  operated  in  connection  with  some  other,  such  as  a  telegraph, 
postal,  electric  power,  or  even  railroad  system,  the  determination 
of  the  expense  of  rendering  the  telephone  service  alone  is  more  dif- 
ficult. If  the  telegraph  poles  also  carry  the  telephone  wires,  "or  if 
the  post-office  building  also  contains  the  telephone  exchange,  or  if 
the  same  employees  repair  both  a  rotary  transformer  on  a  power- 
transmission  line  and  a  storage  battery  in  a  telephone  exchange, 
the  apportionment  to  each  service  of  its  fair  share  of  expense  is  an 
inconvenient,  when  not  an  impossible,  operation.  By  means  of  the 
most  minute  book-keeping  it  may  be  done,  or  the  share  of  each 
service  in  joint  expenditures  may  be  roughly  estimated,  or  may 
even  be  declared  arbitrarily.  But  who  can  presume  to  apportion 
among  the  several  services  the  salaries  of  the  higher  managing  offi- 
cials who  devote  their  valuable  time,  now  to  one,  now  to  another 
branch  of  the  composite  undertaking? 

The  difficulties  of  determining  the  expense  of  rendering  any 
particular  unit  of  service  are  even  greater.  What  unit  of  service 
is  to  be  selected?  Shall  it  be  the  telephone  line  and  instrument? 
This  may  be  rented  at  so  much  a  year,  entitling  the  renter  to  an 
unlimited  number  of  connections  with  all  other  persons  whomso- 
ever attached  to  the  same  telephone  system.  The  obvious  objec- 
tion to  this  method  is  that  different  subscribers  will  make  unequal 
use  of  their  telephone  lines.  Some  will  use  it  many  times  a  day, 
others  only  occasionally.  It  is  therefore  manifestly  unjust  to 
charge  all  alike  unless  there  is  no  alternative.  Fortunately,  the 
desirability  of  securing  an  alternative  provides  the  incentive  for 
discovering  one.  Shall  it  be  the  message  itself?  This  seems  a 
much  fairer  unit  of  service  than  the  line  and  instrument.  It  also, 
however,  is  open  to  objections.  Some  subscribers  will  consume 
many  minutes  in  completing  a  communication,  others  only  as 
many  seconds.  Some  will  talk  over  many  miles  of  intervening 
space,  others  just  around  the  corner.  Many  will  wish  to  converse 
over  their  telephone  just  at  the  moment  when  everybody  else  most 


114  PUBLIC  OWNERSHIP  OF  TELEPHONES 

wishes  to  make  use  of  the  service,  while  others  will  have  occa- 
sion to  use  it  only  in  the  comparatively  undesirable  hours  of  the 
early  morning  or  the  late  evening.  Finally,  a  few  will  desire  to 
have  the  exchange  kept  open  during  the  dead  of  night,  when  most 
of  their  fellow  mortals  are  glad  to  cease  their  talking  and  sleep. 

An  ideal  telephone  rate,  based  on  the  expense  of  rendering  the 
service,  must  vary  according  to  (a)  the  value  of  all  the  plant 
employed  in  erf  ecting  each  conversation ;  (b)  the  time  during  which 
the  plant  is  occupied  in  effecting  the  conversation;  and  (c)  the 
labor  required  to  make  and  break  the  connection.  Under  (a) 
allowance  must  be  made  not  only  for  the  expenses  of  construction, 
but  also  for  those  of  maintenance  and  depreciation,  and  for  all 
other  charges  that  cannot  be  resolved  into  payments  for  the  labor 
and  talent  occupied  in  the  mere  operation  of  the  system.  Under 
(b)  consideration  must  be  taken,  not  only  of  the  actual  duration 
of  the  conversation,  but  also  of  the  time  during  which  valuable 
plant  must  lie  idle  in  order  that  it  may  be  ready  for  use  at  the 
particular  moment  when  it  is  desired.  Under  (c)  provision  must 
be  made  not  only  for  a  contribution  towards  the  pay  of  the  ex- 
change operator  for  the  particular  service  rendered,  but  also  for  a 
contribution  towards  his  pay  for  the  time  during  which  he  waits 
for  calls,  and  another  towards  the  salaries  of  the  managing  force 
so  far  as  its  members  concern  themselves  with  the  operation  of  the 
telephone  system. 

The  difficulty  of  determining  such  items  with  accuracy  is  appar- 
ent. Yet  ideal  justice,  on  the  basis  of  the  expense  of  rendering  the 
service,  cannot  be  done  to  telephone  subscribers  unless  all  these 
items  are  duly  taken  into  consideration.  Neither  the  message, 
nor  the  message-minute,  nor  the  message-minute-mile  can  do  duty 
as  an  ideal  unit  of  service.  It  must  be  a  far  nicer  unit  than  any  of 
these.  In  short,  an  ideal  telephone  rate  based  on  the  expense 
of  rendering  the  service  would  be  extremely  difficult  to  make. 

The  alternative  is  to  abandon  the  expense  of  rendering  the  ser- 
vice as  a  basis  of  rate  making  and  attempt  a  solution  of  the  prob- 
lem on  the  basis  of  the  utility  of  the  service.  The  total  expense  of 
carrying  on  the  undertaking  will  then  serve  simply  to  describe 
the  limits  within  which  the  actual  rates  may  be  adjusted  to  the 


THE  THEORY  OF  REASONABLE  RATES  115 

real  usefulness  of  the  service  in  each  particular  case.  The  utility 
of  the  telephone  service  to  different  subscribers  varies  according 
to  (a)  the  quantity  and  nature  of  the  messages  that  require  to  be 
despatched;  (b)  the  number  of  different  desirable  connections 
which  the  service  enables  to  be  effected;  and  (c)  the  other  modes 
of  communication  that  are  available. 

Let  us  consider  first  the  last  of  these  causes  of  variations  in  the 
utility  of  telephone  service  to  different  subscribers.  The  greater 
the  difficulty  of  employing  a  satisfactory  substitute  for  the  tele- 
phone, the  greater  will  be  the  utility  of  the  telephone  itself.  On 
the  other  hand,  the  greater  the  availability  of  the  telegraph,  postal, 
pneumatic  tube  or  district  messenger  services,  the  less  urgently, 
other  things  being  equal,  the  need  for  the  telephone  will  be  felt. 
However,  the  effect  of  differences  in  utility,  arising  from  this  cause 
will  not,  ordinarily,  be  reflected  in  the  rates,  but  in  the  use  of  the 
service;  for  this  cause  of  variations  in  the  degree  of  utility  ascribed 
to  a  telephone  service  applies  with  nearly  like  force  to  all  classes 
in  the  same  community.  But  the  general  level  of  rates  in  any  one 
community  is  determined  with  a  fair  degree  of  accuracy  by  the 
general  conditions  governing  the  supply  of  the  service  in  that 
community.  Consequently,  this  factor  does  not  so  much  affect  the 
relative  rates  which  different  classes  of  subscribers  in  the  same 
community  are  willing  to  pay  as  it  does  the  relative  use  of  the 
service  by  the  community  as  a  whole  when  compared  with  other 
communities.  As  between  communities  in  which  the  general  level 
of  rates  is  the  same,  that  community  possessing  the  best  supply 
of  other  facilities  for  serving  the  same  purpose  as  the  telephone 
will  have  the  least  use  for  the  telephone  service. 

In  so  far,  however,  as  the  other  facilities  are  less  adequate  to 
satisfy  the  needs  of  some  members  of  the  same  community  than 
of  others,  the  telephone  will  be  more  highly  valued  by  the  former 
than  by  the  latter.  This  leads  us  back  to  the  first  of  the  causes 
of  variations  in  the  utility  of  telephone  service  to  different  sub- 
scribers. The  country  physician  or  metropolitan  stock-broker 
would  feel  the  loss  of  his  telephone  connection  far  more  than  would, 
for  example,  the  ordinary  suburban  resident  or  small  shopkeeper. 
The  social  uses  to  which  the  telephone  is  extensively  put  by 


Il6  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ordinary  residential  subscribers  satisfy  a  far  less  urgent  want  than 
the  business  uses  to  which  it  is  put  by  financial  and  commercial 
magnates.  The  prospective  subscriber,  to  whom  the  possibility 
of  sending  a  message  by  telephone  will  be  only  a  trifling  and  occa- 
sional convenience,  cannot  be  asked  to  pay  the  same  price  for  his 
service  as  another  to  whom  it  will  be  a  regular  necessity. 

These  differences  in  the  quantity  and  nature  of  the  messages 
that  different  subscribers  desire  to  transmit  can  exercise  an  influ- 
ence on  the  price  of  telephone  service  only  because  the  service  of 
one  subscriber  is  to  a  certain  extent  inseparable  from  that  of  the 
whole  community.  The  demand  for  telephone  service  does  not 
spring  from  a  purely  individual  need  like  that  for  soap  or  groceries. 
Its  source  lies  in  a  preeminently  collective  need.  No  person  cares 
to  be  the  only  subscriber  to  a  telephone  system.  It  is  only  by 
putting  him  in  closer  touch  with  other  persons  with  whom  he  is 
likely  to  wish  to  converse  that  a  telephone  system  can  be  of  any 
use  to  him.  The  more  such  persons  are  connected  by  a  telephone 
system,  the  more  useful  is  the  service  to  each  person  concerned. 
Indeed,  the  greater  a  system  becomes,  the  greater  the  rate  at 
which  its  total  utility  increases,  for  not  only  the  absolute  number 
of  subscribers  increases,  but  ipso  facto  the  number  of  possible  con- 
nections for  each  subscriber  also  increases. 

It  does  not  follow,  however,  that  the  service  thereby  becomes 
more  useful  to  every  particular  subscriber.  Some  of  the  earlier 
subscribers  may  find  nobody  among  the  later  subscribers  with 
whom  they  wish  to  converse.  Conversely,  some  of  the  later  sub- 
scribers may  have  been  induced  to  join  the  system  only  in  order 
to  converse  with  a  small  number  of  others  who  subscribed  at  the 
same  time.  One  may  care  only  for  a  long-distance  service,  and  be 
indifferent  to  the  size  of  the  local  exchange.  Another  may  care 
only  for  a  certain  class  of  local  service  and  be  indifferent  to  the 
growth  of  other  classes.  For  instance,  the  stock-broker  may  care 
to  converse  only  with  financial  and  commercial  concerns,  and  be 
equally  indifferent  to  the  number  of  stores,  shops,  and  residences 
that  may  be  connected  to  his  exchange.  Retail  dealers  may  be 
especially  desirous  of  being  connected  with  residences;  wholesale 
dealers  equally  desirous  of  being  connected  with  the  retailers,  but 


THE  THEORY  OF  REASONABLE  RATES  117 

indifferent  to  the  residences;  and  residential  subscribers,  in  their 
turn,  chiefly  eager  to  converse  among  themselves.  Some  circles 
of  telephone  users  are  comparatively  closed,  others  more  open. 
The  former  have  little,  or  perhaps  even  nothing,  to  gain  by  the 
accession  of  additional  subscribers  to  the  system.  The  latter,  on 
the  contrary,  will  gain  a  great  deal  by  the  extension  of  the  service 
as  a  whole. 

There  is  only  one  way  in  which  the  extent  of  a  telephone  system 
can  be  increased.  That  is  by  the  attraction  of  new  subscribers 
who  have  less  use  for  the  service  than  have  the  old.  If  this  were 
not  so,  they  would  have  subscribed  earlier.  But  if  the  new  sub- 
scribers have  less  use  for  the  service,  they  can  be  attracted  only 
by  lower  rates.  So  far  as  such  an  extension  of  a  telephone  system 
brings  an  increase  of  its  usefulness  to  the  older  subscribers,  the 
latter  will  be  willing  to  bear,  if  necessary,  a  portion  of  the  expense 
of  attracting  the  new  subscribers.  For  example,  the  grocer  whose 
customers  are  on  the  point  of  subscribing  to  the  telephone  ser- 
vice will  not  object  to  paying  a  little  more  than  formerly  if  he  can 
thereby  help  induce  them  to  join  the  system.  He  will  calculate 
on  saving  the  extra  charge  and  more  by  substituting  the  telephone 
for  the  special  messenger  in  the  collection  of  his  orders.  But  the 
ship-chandler  or  dealer  in  business  stationery  will  feel  himself 
injured  if  an  increase  in  the  number  of  residential  subscribers  be 
made  at  the  cost  of  higher  rates  for  his  service.  So  long  as  the 
expansion  of  a  telephone  system  can  be  effected  without  shifting 
a  part  of  the  expense  to  the  shoulders  of  the  old  subscribers,  all 
circles  of  users  will  welcome  the  change.  But  if  further  expansion 
becomes  dependent  on  a  contribution  by  the  older  subscribers 
towards  the  expense  of  serving  the  new,  those  circles  of  users  who 
do  not  share  in  the  increased  benefits  of  the  more  extensive  service 
will  object  to  paying  any  portion  of  the  cost.  Consequently,  such 
circles  of  subscribers  will  find  it  to  their  interest  to  oppose  the 
further  increase  of  the  service.  This  attitude,  however,  tends  to 
prevent  the  telephone  service  from  obtaining  its  greatest  utility 
to  the  community  as  a  whole. 

As  a  matter  of  fact,  such  a  conflict  of  interest  between  the  gen- 
eral mass  of  telephone  users  in  a  community  and  certain  more 


Il8  PUBLIC  OWNERSHIP  OF  TELEPHONES 

or  less  closed  circles  of  users  is  not  unlikely  to  occur.  It  is  some- 
times asserted  that  the  total  expense  of  maintaining  a  telephone 
service  in  a  given  community  increases  more  rapidly  than  does 
the  number  of  subscribers.  Consequently  to  double  the  number 
of  subscribers  would  more  than  double  the  average  cost  per  sub- 
scriber of  rendering  the  service.  In  other  words,  the  telephone 
business  does  not  conform  to  the  so-called  principle  of  increasing 
returns,  but,  on  the  contrary,  is  subject  to  that  of  diminishing 
returns.  Experience  has  shown  that  in  many  businesses,  as  the 
scale  of  operations  increases  —  at  least  up  to  a  certain  point  — 
the  expenses  of  putting  out  a  given  quantity  of  product  diminishes. 
Consequently  the  return,  measured  in  terms  of  commodities  pro- 
duced, increases  more  rapidly  than  the  size  of  the  investment. 
In  the  telephone  business,  on  the  contrary,  it  has  been  urged  that 
the  expense  of  connecting  additional  subscribers  with  the  exchange 
and  giving  them  the  communications  they  desire,  does  not  decrease 
but  increases  from  the  very  beginning  as  the  total  number  of 
subscribers  increases.  Hence,  as  a  telephone  system  increases  in 
size,  the  average  charge  per  subscriber  must  inevitably  increase 
also. 

This  view  finds  a  certain  measure  of  justification  both  in  the 
nature  of  the  telephone  business  itself  and  in  the  history  of  its 
development.  As  the  number  of  subscribers  to  a  given  exchange 
service  increases,  the  total  number  of  possible  connections  which 
the  exchange  operators  may  be  called  on  to  make  increases  still 
faster.  For  not  only  may  each  new  subscriber  demand  to  be  put 
in  communication  with  all  the  old  subscribers,  but  all  the  old  sub- 
scribers may  also  demand  to  be  put  in  communication  with  him. 
The  result  of  this  enforced  multiplication  of  labor  is  to  increase 
the  total  expense  of  effecting  telephone  connections  at  the  central 
office  more  rapidly  than  the  number  of  subscribers  itself  increases.1 
In  practice,  after  the  number  of  subscribers  has  reached  a  certain 
point,  a  single  operator  can  no  longer  effect  all  the  possible  con- 
nections. It  becomes  necessary  to  introduce  multiple  switch- 
boards. Thereafter,  one  operator  is  expected  to  effect  any  possible 

1  The  formula  is  s=n(n—  i),  $  being  equal  to  the  total  number  of  possible  connec- 
tions, when  »  equals  the  total  number  of  subscribers. 


THE  THEORY  OF  REASONABLE  RATES  119 

connection  for  a  certain  definite  number  of  subscribers  only. 
Additional  operators  are  employed  to  effect  the  connections  de- 
sired by  the  other  subscribers,  each  serving  a  special  group. 

The  early  exchanges,  moreover,  especially  in  Europe,  served 
at  first  only  the  business  portion  of  the  community.  It  was  only 
later  that  the  service  was  gradually  extended  to  the  residential 
districts.  But  these  were  situated  at  a  considerable  distance,  even 
in  Europe,  from  the  heart  of  the  business  district,  where  the  first 
central  offices  were  constructed.  Consequently  the  connecting 
lines  had  to  be  longer.  The  effect  of  such  an  extension  of  a  tele- 
phone system,  therefore,  was  to  increase  the  average  expense  of 
construction  per  line.  Thus,  during  the  early  development  of  the 
telephone  industry,  the  increase  of  the  number  of  subscribers 
brought  with  it  an  increase  of  the  expenses  both  of  construction 
and  of  operation.  Ultimately,  however,  the  telephone  system 
reaches  its  maximum  development,  so  far  as  the  area  over  which 
the  service  must  be  supplied  is  concerned,  and  further  growth  can 
take  place  only  by  a  process  of  saturation,  so  to  speak,  of  the  area 
already  covered.  Additional  subscribers  will  no  longer  be  com- 
posed of  persons  whose  needs  are  of  the  same  sort  as  those  of  the 
previous  subscribers,  but  who  have  been  previously  deterred  from 
joining  the  system  on  account  of  their  more  remote  location.  It  will 
be  composed  of  new  classes  of  subscribers  who  have  been  slower 
than  the  original  subscribers  to  feel  a  need  for  the  service.  The 
addition  of  such  persons  to  the  telephone  system  will  not  involve 
an  increase  of  the  average  expense  of  construction  per  line.  On 
the  contrary,  there  will  be  savings  in  the  external  construction 
more  than  sufficient  to  offset  the  increased  expense  of  operation; 
for  the  new  lines  can  be  put  up  on  old  poles,  or  can  be  drawn 
through  conduits  already  in  place  to  receive  them.  In  a  properly 
designed  telephone  system  at  the  present  day  there  is  a  great  deal 
of  initial  construction  that  will  serve  to  accommodate  the  in- 
crease of  the  connections  for  many  years  to  come.  It  is  no  longer 
true  that  the  total  expense  of  maintaining  the  telephone  service  in 
a  given  community  tends  to  increase  more  rapidly  than  the  number 
of  subscribers  increases. 

It  is  true,  however,  that  the  average  expense  per  subscriber  for 


120  PUBLIC  OWNERSHIP  OF  TELEPHONES 

similar  classes  of  service  is  much  greater  in  some  communities 
than  in  others.  Different  communities  require  different  standards 
of  construction.  In  a  small  village  the  wires  may  easily  be  accom- 
modated on  rough  wooden  poles  set  up  along  the  public  ways.  In 
a  large  city  they  must  be  buried  under  the  pavements  in  expensive 
artificial  conduits.  In  the  village  the  service  may  be  satisfactorily 
rendered  by  open  single  wires.  In  the  city  it  is  necessary  to  make 
use  of  closed  metallic  circuits,  encased  in  carefully  insulated  cables. 
In  short,  the  standard  of  construction  is  necessarily  far  superior 
in  the  large  centres  of  population  to  that  required  in  less  populous 
communities.  Hence  the  average  expense  of  the  service  per  sub- 
scriber is  bound  to  be  greater  in  the  former  than  in  the  latter. 

Many  persons,  however,  have  no  more  use  for  the  telephone 
in  a  large  place  than  they  would  have  in  a  smaller  place.  Dis- 
tances, to  be  sure,  are  likely  to  be  greater,  but,  on  the  other  hand, 
the  alternative  modes  of  communication  are  likely  to  be  better. 
Friends  are  not  necessarily  more  numerous,  nor  tradespeople 
more  remote,  in  one  place  than  in  the  other.  To  the  big  financial 
and  business  interests  in  the  large  city  the  telephone  is  tremen- 
dously useful.  But  to  the  small  tradespeople  and  residential  sub- 
scribers it  is  doubtful  if  the  need  of  the  service  is  more  perceptible 
in  the  large  than  in  the  small  center  of  population.  Yet  it  will  be 
more  expensive  to  render  an  equivalent  service  to  such  persons  in 
the  former  than  in  the  latter.  In  the  small  places  these  persons 
will  be  attracted  to  the  local  telephone  system  by  the  low  rates 
which  are  possible  in  such  places.  In  order  to  attract  them  to  the 
telephone  system  in  the  large  places,  a  correspondingly  low  rate 
must  be  made.  But  this  can  be  done  only  at  the  expense  of  those 
persons  whose  higher  valuation  of  the  utility  of  the  telephone 
service  has  already  led  them  to  join  the  system.  Some  of  these 
persons  will  gladly  bear  a  portion  of  the  added  expense,  for  they 
will  gain  by  the  increase  of  their  range  of  communication  more 
than  they  will  be  called  upon  to  pay.  But  others  will  not.  These 
last  will  be  for  the  most  part  persons  to  whom  a  limited  range  of 
service  has  an  extremely  high  value.  A  considerable  increase  in 
their  rates  would  probably  cause  only  a  slight  diminution  in  the 
quantity  of  service  they  would  demand.  That  same  increase  of 


THE  THEORY  OF  REASONABLE  RATES  121 

rates  would  make  possible  the  extension  of  the  service  to  a  large 
number  of  small  users,  none  of  whom  sets  a  high  value  on  the  ser- 
vice, but  all  of  whom  together  would  derive  more  satisfaction 
from  their  use  of  the  service  than  the  big  users  would  lose  by  the 
trifling  collective  curtailment  of  theirs.  Here  therefore  is  an 
instance  of  a  direct  antagonism  between  the  interests  of  a  peculiar 
special  section  of  the  community  and  the  greatest  interest  of  the 
community  as  a  whole,  for  the  community  as  a  whole  would  secure 
a  balance  of  satisfaction  by  the  extension  of  the  service. 

If  telephone  rates  are  based  on  the  cost  of  service,  supposing 
such  a  basis  to  be  a  practicable  one,  the  promotion  of  the  greatest 
interest  of  the  whole  community  in  this  case  would  not  be  possible. 
By  the  adoption  of  utility  as  the  basis  of  telephone  rates  it  would 
be  possible,  but  at  the  cost  of  the  dissatisfaction  of  a  portion  of  the 
telephone  users.  No  system  of  rates  can  give  universal  satisfac- 
tion. If  the  expense  of  rendering  the  service  be  taken  as  the 
basis,  the  price  of  the  service  will  bear  no  universal  relation  to  its 
utility.  In  other  words,  the  actual  price  of  a  telephone  service  at 
a  particular  place  will  not  be  an  accurate  indication  of  the  utility 
of  that  particular  service;  for  another  telephone  user  in  another 
place  may  put  a  higher  valuation  on  an  exactly  similar  service, 
which  he  receives  along  with  a  quantity  of  less  desirable  service 
at  the  same  rate  as  that  paid  by  the  first  user.  On  the  other  hand, 
if  the  utility  of  the  service  be  taken  as  the  basis,  the  price  will  bear 
no  direct  relation  to  the  expenses  of  production.  For  some  sub- 
scribers in  a  given  community,  it  will  be  greater;  for  others  less 
than  if  they  were  connected  to  independent  systems.  It  appears 
impossible  to  make  telephone  rates  in  the  interests  of  all  classes 
of  telephone  users  at  once.  The  interests  of  some  must  necessarily 
be  sacrificed  in  order  to  secure  the  interests  of  others. 

These  practical  difficulties,  however,  do  not  alter  the  fact  of  the 
existence  of  an  ideally  just  price  for  telephone  service.  A  just 
schedule  of  rates  is  that  one  which  will  secure  the  maximum  of 
satisfaction  in  the  community  as  a  whole.  Thus,  in  the  case  already 
cited,  the  increase  of  the  price  to  one  class  of  users  in  the  com- 
munity may  cause  that  class  to  give  up  a  portion  of  the  service 
which  it  had  previously  been  enjoying.  But  if  it  makes  possible 


122  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  extension  of  the  service  among  other  classes  of  the  community, 
and  enhances  the  satisfaction  which  they  derive  from  the  service 
more  than  it  diminishes  that  of  the  first  class,  such  a  change  of 
rates  would  be  a  change  in  the  direction  of  ideal  justice,  for  it 
increases  the  total  satisfaction  derived  by  the  community  from 
its  telephone  service. 

The  establishment  of  telephone  rates  on  a  basis  of  ideal  justice 
is  a  difficult  undertaking.  Indeed,  so  long  as  a  telephone  system 
continues  to  attract  new  subscribers,  it  is  more  than  difficult,  it  is 
impossible.  The  number  of  desirable  telephone  connections  for 
any  particular  subscriber  or  class  of  subscribers  bears  no  definite 
relation  to  the  number  of  possible  connections.  The  addition  to  a 
telephone  system  of  new  circles  of  subscribers  desiring  new  classes 
of  service  not  only  increases  the  total  extent  of  the  service,  but 
alters  its  usefulness  to  the  old  circle  of  subscribers.  To  some  the 
change  brings  an  increase  of  utility,  to  others  it  does  not.  Under 
such  circumstances,  no  schedule  of  rates,  no  matter  how  satisfac- 
tory when  first  adopted,  can  do  permanent  justice  to  all  classes 
of  telephone  users,  or  secure  indefinitely  the  maximum  of  satis- 
faction to  the  whole  community.  Hence  arises  an  ever-present 
necessity  for  the  modification  of  the  existing  telephone  rates  with 
a  view  to  a  closer  accord  between  the  different  classes  of  rates  and 
the  utility  of  the  service.  The  ideal  of  justice  remains  ever  the 
same,  but  the  conditions  constantly  change  to  which  must  be 
accommodated  the  actual  rate  schedule  that  represents  this  ideal. 
Reasonable  telephone  rates  are  rates  which  approach  this  ideal 
as  closely  as  the  circumstances  at  a  given  time  permit. 

The  circumstances  which  may  reasonably  interpose  at  a  given 
time  to  prevent  the  adjustment  of  the  actual  rates  to  the  ideal  are 
inherent  in  the  nature  of  the  industry  itself.  Thus  the  simplest, 
and  almost  universally,  the  earliest  telephone  rates  were  made  on 
the  basis  of  a  fixed  annual  rental  for  a  telephone  line  and  instru- 
ment, entitling  the  subscriber  to  an  unlimited  exchange  service. 
This  method  of  charging  was  in  most  communities  sooner  or  later 
shown  to  be  far  from  ideal.  Yet  the  introduction  of  a  fairer  method 
of  charge  —  for  example,  on  the  basis  of  the  number  of  messages 
actually  transmitted  —  was  impracticable,  so  long  as  there  was 


THE  THEORY  OF  REASONABLE  RATES  123 

no  reliable  mode  of  recording  accurately  the  number  of  effective 
connections.  While  the  method  of  charging  a  flat  annual  rate  was 
the  only  method  practicable,  it  could  not  well  be  considered  un- 
reasonable, however  desirable  a  change  might  be. 

As  a  result  of  the  technical  progress  of  the  industry,  more  nearly 
just  methods  of  charging  became  feasible.  Thereafter  the  further 
maintenance  of  annual  flat  rates  was  unreasonable.  Every  progres- 
sive telephone  management  became  bound  to  introduce  message 
rates.  The  latter,  in  their  turn,  may  be  recognized  to  fall  far  snort 
of  ideal  justice.  Yet  if  the  state  of  telephone  technique  renders  im- 
possible the  introduction  of  a  nicer  basis  of  charge,  the  method 
of  measuring  the  utility  of  the  service  according  to  the  number  of 
messages  transmitted  must  be  considered  a  reasonable  one.  When- 
ever it  shall  become  possible  to  ascertain  with  accuracy  the  time- 
value,  so  to  speak,  of  plant  and  labor  employed  in  rendering  a 
given  service,  the  failure  to  substitute  a  more  precise  basis  of 
charge  for  the  ordinary  message  will  then  become  unpardonable, 
and  message  rates  will  then  become  unreasonable  rates.  Under 
these  qualifications  the  establishment  of  reasonable  rates  for  tele- 
phone service  ought  to  be  a  feasible  undertaking. 

Under  a  regime  of  free  competition,  reasonable  rates  will  theo- 
retically be  established  by  the  spontaneous  operation  of  the  forces 
of  demand  and  supply.  On  the  one  hand,  telephone  service  is 
desired  by  divers  persons  with  various  degrees  of  intensity.  They 
are  consequently  willing  to  pay  various  sums  in  order  to  secure  the 
service  they  respectively  desire.  On  the  other  hand,  divers  other 
persons,  impelled  by  the  universal  desire  for  a  profit,  are  willing 
to  undertake  to  furnish  telephone  service  to  all  who  demand  it, 
provided  they  perceive  a  prospect  of  obtaining  a  satisfactory 
remuneration  for  their  toil  and  trouble.  In  course  of  time  the 
process  of  bargaining  set  up  between  prospective  telephone  sub- 
scribers and  telephone  business  men  by  their  mutual  self-interest 
will  establish  a  schedule  of  reasonable  rates  for  telephone  service. 
This  result  will  be  reached  when  each  of  those  business  men, 
whose  undertakings  are  required  in  order  to  render  the  entire 
amount  of  service  for  which  subscribers  are  willing  to  pay,  will  be 
receiving  a  satisfactory  remuneration  at  the  prices  which  can  be 


124  PUBLIC  OWNERSHIP  OF  TELEPHONES 

obtained.  The  subscribers  on  their  part  will  then  have  no  cause 
for  complaint,  because,  if  the  services  for  which  they  are  paying 
could  be  performed  for  less,  some  enterprising  business  men  would 
be  doing  it.  Presumably  the  existing  state  of  affairs  is  the  one 
which  enables  the  maximum  of  satisfaction  to  be  derived  from  the 
service  as  a  whole  by  the  community  at  large.  Such,  in  brief,  is 
the  theory  of  competitive  rates. 

The  method  of  establishing  reasonable  telephone  rates  by  means 
of  the  free  competition  of  independent  telephone  systems  with  one 
another  has  the  advantage  that  the  operation  of  rate-making  is 
automatic.  So  long  as  a  state  of  free  competition  actually  exists, 
the  telephone  subscriber  can  safely  trust  to  his  liberty  of  choice 
between  the  services  of  rival  undertakings  to  insure  him  against 
unreasonable  charges. 

The  difficulty  with  the  theory  of  competitive  rates  in  the  tele- 
phone business  is  that  the  liberty  of  choice  between  rival  under- 
takings is  illusory.  No  two  competing  systems  can  offer  the  same 
range  of  communication.  The  subscribers  to  one  system  will  have 
no  means  of  conversing  with  those  to  the  other.  Consequently 
the  prospective  subscriber  is  not  free  to  compare  the  price  levels  and 
conditions  of  service  of  the  rival  undertakings.  He  is  compelled 
to  join  that  system  to  which  are  already  connected  those  persons 
with  whom  he  most  desires  to  converse. 

Moreover,  unless  he  is  so  fortunate  as  to  find  all  those  persons 
with  whom  he  desires  to  converse  connected  to  the  same  system, 
he  cannot  choose  between  rival  services  without  being  thereby  de- 
prived of  the  possibility  of  effecting  a  certain  proportion  of  the 
communications  which  he  would  like  to  carry  on  by  means  of  the 
telephone.  The  utility  of  the  telephone  lies  in  its  marvellous  power 
of  transmitting  the  spoken  word  and  reproducing  it  at  a  distance. 
The  greater  the  number  of  persons  who  are  enabled  to  converse 
with  one  another,  regardless  of  intervening  space,  by  means  of  a 
telephone  system,  the  greater  is  the  utility  of  the  system.  The  most 
useful  telephone  system  would  be  one  which,  like  the  postal  ser- 
vice, reaches  everybody.  Whatever  excludes  a  portion  of  the  com- 
munity from  participating  in  the  benefits  of  a  telephone  system, 
impairs  by  so  much  its  usefulness.  Now  a  competitive  under- 


THE  THEORY  OF  REASONABLE  RATES  125 

taking  does  just  that.  The  subscribers  to  each  undertaking  are 
debarred  from  carrying  on  telephonic  conversations  with  the  sub- 
scribers to  the  other  undertaking.  If  there  are  several  competing 
systems,  the  impairment  of  the  usefulness  of  the  service  is  corre- 
spondingly greater.  If  there  were  as  many  sellers  of  telephone 
service  as  buyers,  and  all  were  determined  to  remain  in  the  busi- 
ness, the  telephone  would  have  no  usefulness  at  all. 

To  be  sure,  a  telephone  user  can  subscribe  to  all  competitive 
systems,  and  thus  obtain  for  himself  the  maximum  of  utility  from 
the  telephone  service.  If  all  telephone  users  do  this,  competition 
will  not  impair  the  usefulness  of  the  service  so  far  as  the  users  are 
concerned.  They  will  have  no  cause  for  dissatisfaction,  provided 
they  pay  for  their  service,  not  on  the  basis  of  the  quantity  of  sets 
of  arrangements  kept  up  for  the  purpose  of  rendering  the  service, 
but  on  the  basis  of  its  utility  to  them.  So  long  as  they  pay  only 
for  the  amount  of  service  actually  received,  they  need  not  trouble 
themselves  with  the  unnecessary  and  therefore  wasteful  multi- 
plication of  the  means  of  supplying  it.  Hence,  under  these  most 
favorable  conditions,  competition  from  the  consumers'  point  of 
view  is  simply  an  unthrifty  dispensation  of  the  public  resources, 
the  burden  of  which  does  not.  fall  directly  on  their  shoulders.  But 
under  less  favorable  conditions,  it  either  deprives  the  service  of  a 
more  or  less  considerable  portion  of  its  usefulness,  or  compels  the 
subscriber  to  pay  for  plant  which  he  does  not  use,  or  does  both. 
Under  such  conditions  the  rates  could  not  be  reasonable. 

Fortunately  a  permanent  state  of  competition  in  the  telephone 
business  is  as  impracticable  as  it  is  undesirable.  Unless  those  who 
undertake  to  supply  the  service  succeed  in  deluding  the  users  into 
paying  for  costly  sets  of  arrangements  which  are  not  used,  they 
must  defray  out  of  their  own  pockets  the  expense  of  maintaining 
the  superfluous  plant.  Thus  competition,  instead  of  reducing  the 
expenses  of  rendering  the  service,  increases  them.  At  the  same  time 
it  brings  no  corresponding  advantage  to  either  consumer  or  pro- 
ducer. Acute  managers  of  rival  telephone  undertakings  are  not 
slow  to  discover  the  folly  of  waging  an  expensive  struggle  for  the 
fragments  of  the  business,  when  they  might  peacefully  possess 
themselves  of  the  whole  loaf.  Not  competition,  but  combination, 


126  PUBLIC  OWNERSHIP  OF  TELEPHONES 

is  the  life  of  the  telephone  trade.  To  be  sure,  such  a  combination 
is  always  at  the  mercy  of  any  economic  freebooter  who  can  put 
himself  in  a  position  seriously  to  threaten  a  renewal  of  cut-throat 
competition.  But  economic  freebooters  usually  have  their  price, 
and  so  long  as  the  leaders  of  the  combination  maintain  their  posi- 
tion, they  can  pay  the  price.  Competition  in  the  telephone  busi- 
ness is  bound  to  be  short-lived,  provided  the  managers  of  the 
business  are  let  alone  by  the  public  authorities. 

It  so  happens,  however,  that  it  is  impossible  for  the  public 
authorities  not  to  concern  themselves  with  the  telephone  business. 
In  order  that  the  business  may  be  conducted  on  a  large  enough 
scale  to  be  of  genuine  service  to  the  community,  it  must  make  use 
of  the  public  highways.  Otherwise,  it  would  be  a  medium  of  com- 
munication only  between  persons  dwelling  in  the  same  block.  The 
public  authorities,  therefore,  are  forced  to  decide  upon  what  terms, 
if  at  all,  they  will  grant  the  use  of  their  highways  for  telephonic 
purposes.  If  they  believe  in  the  universal  efficacy  of  free  competi- 
tion as  the  basis  of  a  well-ordered  world  of  affairs,  they  will  consent 
without  further  ado  to  the  use  of  their  highways  by  all  who  care 
to  engage  in  the  business  of  telephone  service.  It  will  not  be  long, 
however,  before  they  will  realize  that  whatever  may  be  the  merits 
of  that  policy  from  the  view-point  of  users  of  the  service,  it  is 
decidedly  bad  for  the  public  highways.  Each  separate  company 
will  dig  holes  in  the  gutters  to  plant  poles,  or  tear  up  the  pavements 
to  bury  cables,  and  the  result  will  be  a  perpetual  state  of  upheaval 
and  confusion,  which  will  neither  improve  the  superficial  condition 
of  the  highways,  nor  facilitate  their  use  by  the  public.  Then  the 
public  authorities  will  be  ready  to  listen  to  suggestions  by  those 
already  engaged  in  the  business,  that  the  sanction  of  additional 
telephone  undertakings  will  not  promote  the  best  interests  of  the 
community.1 

1  John  Stuart  Mill,  in  general  a  rigorous  adherent  to  the  theory  of  laissez  faire,  the 
theory  that  the  less  a  government  concerns  itself  with  the  management  of  business 
undertakings  the  better,  wrote  in  his  Principles  of  Political  Economy  (Book  i,  ch.  ix, 
§  4) :  "  When,  however,  a  business  of  real  public  importance  can  only  be  carried  on  ad- 
vantageously on  so  large  a  scale  as  to  render  the  liberty  of  competition  almost  illusory, 
it  is  an  unthrifty  dispensation  of  the  public  resources  that  several  costly  sets  of  ar- 
rangements should  be  kept  up  for  the  purpose  of  rendering  to  the  community  this  one 


THE  THEORY  OF  REASONABLE  RATES  127 

Since  the  policy  of  free  competition  offers  no  adequate  assur- 
ance of  reasonable  rates  for  telephone  service,  the  question  at  once 
arises,  How  shall  they  be  determined?  The  only  alternative  to 
competition  is  monopoly  of  some  sort.  The  forces  of  demand  and 
supply  will  operate  under  a  regime  of  monopoly,  as  under  one 
of  free  competition,  but  the  results  will  not  be  the  same.  In  the 
latter  case,  the  interests  of  the  monopolist  will  ordinarily  lead  him 
to  fix  his  rates  at  a  level  which  is  intended  to  yield  him  the  maxi- 
mum of  profit.  Having  adopted  a  tentative  schedule  of  rates,  he 
carefully  observes  the  extent  of  the  demand  for  his  services  at 
those  rates  and  readjusts  them,  if  need  be,  until  the  actual  sale 
of  his  services  verifies  his  calculations.  His  purpose  always  is  to 
make  as  large  as  possible  the  surplus  that  remains  after  deducting 
from  his  gross  receipts  all  the  expenses  of  rendering  the  service. 
Consequently,  under  a  regime  of  unregulated  private  monopoly, 
rates  are  certain  to  be  exorbitant. 

In  the  telephone  business,  to  this  disadvantage  from  the  view- 
point of  the  community  of  monopolies  in  general,  must  be  added 
a  further  special  disadvantage.  Not  only  is  there  no  protection 
against  exorbitant  rates,  but  also  there  is  no  security  that  the 
distribution  of  the  total  charges  between  the  different  classes  of 
telephone  users  will  be  made  on  a  basis  calculated  to  promote  the 
widest  utility  of  the  service,  such  as  it  is.  For  the  criterion  of  a 
sound  monopolistic  rate  policy  is  not  the  greatest  utility  of  the 
service,  but  the  greatest  profit  of  the  monopolist.  Unfortunately 
the  two  do  not  coincide.  There  will,  for  example,  be  no  incentive 
to  extend  the  service  to  wider  circles  of  users,  unless  such  an 
extension  will  increase  the  gross  receipts  more  than  it  will  increase 
the  operating  expenses.  The  enhanced  profits,  therefore,  which 
the  monopolist  will  obtain  from  those  users  whose  demand  for 
the  service  is  least  elastic,  will  not  be  put  into  extensions  for  the 
benefit  of  those  whose  demand  is  more  elastic,  and  to  whom,  con- 
sequently, a  small  reduction  in  price  would  mean  a  great  increase 

service.  It  is  much  better  to  treat  it  at  once  as  a  public  function,  and  if  it  be  not  such 
as  the  government  itself  could  beneficially  undertake,  it  should  be  made  over  entire 
to  the  company  or  association  that  will  perform  it  on  the  best  terms  for  the  public. " 
Clearly,  the  telephone  is  such  a  business. 


128  PUBLIC  OWNERSHIP  OF  TELEPHONES 

in  satisfaction.  Monopoly  rates  will  not  enable  the  community 
at  large  to  derive  from  the  telephone  service  the  maximum  of 
satisfaction.  Therefore,  they  are  not  reasonable  rates. 

Two  courses  are  open  to  the  public  authorities  in  order  to  pro- 
tect the  interests  of  the  community  at  large.  They  may  intrust 
the  management  of  the  monopoly  to  a  private  monopolist,  who 
will  be  expected  to  adopt  a  policy  of  unreasonable  rates.  They  may 
then  attempt  to  set  a  limit  to  his  unreasonableness  by  prescribing 
in  advance  the  highest  rates  that  he  may  lawfully  charge.  They 
may  even  provide  for  later  reductions  of  rates,  when  profits  shall 
exceed  a  certain  amount.  Finally,  they  may  secure  a  certain  mea- 
sure of  compensation  to  the  community  for  the  distress  caused  by 
the  unreasonableness  of  the  rates,  such  as  they  may  be,  by  stipulat- 
ing for  a  share  of  the  monopoly  profits. 

The  alternative  is  for  the  public  authorities  themselves  to 
administer  the  monopoly,  and  thus  preserve  in  their  own  hands 
complete  power  to  take  whatever  steps  they  may  deem  expedient, 
in  order  to  secure  to  the  community  the  enjoyment  of  reasonable 
telephone  rates.  Before  attempting  to  pass  judgment  upon  these 
alternatives,  we  will  consider  the  various  rate-policies  that  have 
in  fact  been  pursued  by  some  of  the  more  important  countries  that 
have  engaged  in  the  telephone  business. 


CHAPTER  EX 

THE  RATE-POLICY  OF  THE   GERMAN  TELEPHONE  ADMINISTRATION! 
THE   ORIGINAL  FLAT  RATES 

THE  earliest  rates  adopted  on  the  governmental  telephone  .sys- 
tems in  Germany  were  the  so-called  flat  rates.  For  a  lump  sum 
per  annum  the  subscriber  was  furnished  with  a  telephone  instru- 
ment, connected  with  the  local  exchange,  and  permitted  to  con- 
verse with  the  other  subscribers  during  the  hours  that  the  exchange 
was  open  as  often  as  he  pleased.  In  order  to  prevent  subscribers 
from  holding  connections  indefinitely  and  thus  excluding  other 
subscribers  from  the  use  of  the  same  lines,  a  limit  was  set  to  the 
duration  of  a  single  conversation.  Beyond  that,  the  use  of  the 
telephone  was  unrestricted  within  the  limits  of  the  exchange  area. 

The  first  flat  rate  for  such  unlimited  exchange  service  was 
fixed  by  the  imperial  telephone  administration  at  200  marks. 
The  telephone  users,  however,  considered  this  rate  exorbitant.1 
Telephone  users  always  consider  all  rates  exorbitant.  This  fact 
may  as  well  be  premised  at  the  beginning  of  the  discussion.  It  is 
not  intended  thereby  to  cast  any  censure  upon  telephone  users. 
On  the  contrary,  they  do  right  to  consider  all  rates  exorbitant. 
That  is  not  only  human  nature,  but  also  a  security  for  a  progres- 
sive rate  policy.  A  reasonable  amount  of  discontent  is  good  for  a 
community.  It  prevents  the  public  affairs  from  sticking  in  ruts. 
When  people  become  too  well  satisfied  with  their  environment, 
there  is  little  likelihood  of  its  improvement. 

In  the  case  of  the  early  German  telephone  rates  the  discontent 
of  the  subscribers  proved  to  be  justifiable.  Experience  quickly 
showed  that  this  rate  had  been  made  unnecessarily  high.  The  tele- 
phone authorities  of  Bavaria  and  Wurtemberg,  who  usually  took 
their  cue  from  the  imperial  authorities,  led  the  way  in  its  reduc- 

1  See  the  reports  of  any  of  the  chambers  of  commerce  in  cities  in  which  there  were 
telephone  exchanges  during  the  years  1881-83.  See  esp.  HGK  Oberbayern,  1881, 
P-  54. 


130  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tion.  Since  they  were  slower  in  establishing  exchanges,  they  were 
able  to  enjoy  the  benefit  of  the  initial  experience  in  the  imperial 
service.  In  Bavaria,  where  the  telegraph  authorities  did  not  in- 
augurate their  exchange  service  until  May,  1883,  two  years  after 
the  imperial  authorities  established  their  first  exchanges,  the  rate 
was  fixed  from  the  start  at  150  marks.  In  Wurtemberg  the  rate 
was  originally  fixed  in  1882  at  200  marks  and  then  quickly  reduced 
to  1 60  marks  by  virtue  of  a  special  agreement  with  the  local  busi- 
ness men  of  Stuttgart.  By  a  second  agreement  the  rate  in  that 
city  was  reduced  on  January  i,  1884,  to  140  marks.1  When  ex- 
changes were  introduced  into  other  Wurtemberg  cities,  however, 
the  rate  was  fixed  at  the  same  level  as  in  Bavaria.  The  imperial 
authorities  themselves  could  not  long  delay  a  similar  application 
of  the  lessons  of  their  early  experience  in  exchange  operation.  In 
1884  they  voluntarily  reduced  the  flat  rate  from  200  marks  to  150 
marks. 

The  exchange  service  was  made  available  to  that  portion  of  the 
business  community  which  did  not  feel  the  need  of  special  tele- 
phone connections,  by  the  establishment  of  public  call  offices. 
These  were  placed  in  convenient  locations,  such  as  post  and  tele- 
graph offices,  and  could  be  used  by  any  one  on  payment  of  a  small 
fee  per  call.  In  Wurtemberg  the  first  public  call  office  was  estab- 
lished at  the  same  time  as  the  exchange.2  The  fee  was  50  pfennigs 
(about  1 2  cents)  for  a  conversation  of  five  minutes.  A  second  such 
office  was  opened  in  1883  and  the  fee  was  reduced  to  20  pfennigs 
(less  than  five  cents).  In  the  rest  of  Germany  "the  same  policy  was 
pursued.  In  Munich,  at  the  special  request  of  the  Chamber  of 
Commerce,  call  offices  were  established  in  the  state  railroad  freight 
sheds  as  well  as  in  the  post  and  telegraph  offices.3  The  short  dis- 
tances in  middle-sized  German  cities,  especially  in  those  business 
quarters  where  the  telephone  first  came  into  use,  made  these  call 
offices  easily  accessible  to  all  who  were  likely  to  care  to  use  them. 
This  call  office  service,  moreover,  was  developed  in  a  manner  cal- 
culated to  give  it  its  widest  utility.  In  Wurtemberg,  for  example, 

1  HGK  Stuttgart,  1883,  p.  99.  Cf.  ante,  p.  30. 

s  Verwaltungsberickt  (Wurttemberg),  1882-83,  p.  58. 

1  HGK  Oberbayern,  1881,  p.  55. 


THE  GERMAN  FLAT  RATES  131 

the  fee,  maintained  at  20  pfennigs  per  call  for  the  general  public, 
was  reduced  to  10  pfennigs  per  call  for  regular  subscribers  to  the 
exchange  service.  All  such  persons  were  provided  with  cards  of 
identification  in  order  that  fraudulent  advantage  might  not  be 
taken  of  the  special  rate.  However,  any  person  might  subscribe 
to  the  call-office  service  alone  by  paying  a  flat  rate  of  4  marks  per 
month,  or  40  marks  per  year.  Thus  there  was  ample  provision 
for  the  needs  of  such  small  telephone  users  as  there  were  at  that 
stage  in  the  development  of  the  telephone  service.1 

The  peculiar  needs  of  exceptionally  large  users  were  equally 
well  met  by  special  rates.  Such  users  could  attach  additional 
stations  to  their  direct  line  and  use  them  as  much  as  they  pleased 
by  paying  an  additional  70  marks  a  year  for  each  station  so 
attached.  In  apartment  houses,  moreover,  such  extra  telephones 
were  installed  at  half  the  usual  rate,  that  is  for  35  marks  a  year, 
but  it  was  necessary  that  at  least  two  additional  stations  should 
be  installed  in  order  to  obtain  the  extra  reduction.  Finally,  extra 
telephones  were  installed  in  different  offices  of  the  same  subscriber, 
provided  they  were  all  under  one  roof,  at  a  charge  of  20  marks  per 
year.  These  classes  of  services  accommodated  the  exceptional 
large  users  whose  calls  needed  to  be  distributed  among  several 
officials.  They  were  also  calculated  to  stimulate  the  use  of  the 
service  in  office  buildings  where  no  one  occupant  alone  would  have 
paid  the  rate  for  a  direct  exclusive  connection.  And  when  the 
time  should  come  for  the  extension  of  the  use  of  the  telephone 
beyond  the  limits  of  the  world  of  affairs,  these  branch-line  rates 
would  be  available  to  bring  the  service  within  the  reach  of  resi- 
dential subscribers,  just  as  the  rates  for  party-lines  served  an 
identical  purpose  in  the  less  closely  built  urban  and  suburban 
residential  districts  of  America. 

Not  only  the  differences  in  utility,  but  also  those  in  the  expenses 
of  rendering  the  exchange  service,  which  manifested  themselves 
at  the  inauguration  of  the  telephone  business,  were  provided  for. 
The  cost  of  construction  of  an  exchange  system  was  recognized 
even  at  the  start  to  depend  on  more  than  the  mere  number  of 
subscribers.  For  the  cost  of  each  subscriber's  line  varied  according 
1  Hassler:  Die  Staatstelcphonic  in  Wiirttemberg,  ist  edit.,  1887,  App. 


132  PUBLIC  OWNERSHIP  OF  TELEPHONES 

to  its  length.  Consequently  the  original  flat  rates  were  restricted 
to  subscribers  within  two  kilometers  of  the  exchange.  Beyond 
this  limit  each  subscriber  was  required  to  contribute  towards  the 
cost  of  additional  line  35  marks  per  kilometer,  or  fraction  thereof, 
per  year. 

This  schedule  of  rates  was  a  reasonable  one  at  the  time  it  was 
introduced.  The  telephone  was  used  for  exchange  purposes  only 
in  the  large  commercial  centers.  The  wants  of  the  rural  commu- 
nities were  being  satisfied  by  the  construction  of  telephone  lines 
which  would  serve  to  bring  them  into  connection  with  the  general 
telegraph  system  of  the  land.  The  smaller  sort  of  cities  did  not 
yet  feel  a  need  for  local  exchange  service,  and  enjoyed  a  satisfac- 
tory long-distance  service  through  the  telegraphs.  In  the  larger 
cities  the  service  was  used  only  for  business  purposes.  Even 
within  the  business  districts  its  use  was  confined  to  financial  and 
commercial  circles.  The  retailers  were  much  slower  in  discovering 
the  need  for  the  telephone.  Nobody  in  Germany  then  dreamed  of 
using  it  for  residential  purposes  and  in  ordinary  social  intercourse. 
Consequently,  as  between  different  classes  of  telephone  users,  the 
single  flat  rate  measured  out  fairly  even-handed  justice. 

Nor  was  it  an  exorbitant  rate.  During  the  period  when  the 
single  flat  rate  was  in  force  there  was  unquestionably  a  consider- 
able deficit  in  the  joint  telegraph  and  telephone  undertaking. 
An  accurate  division  between  the  telegraph  and  telephone  busi- 
ness is,  however,  not  practicable.1  According  to  a  special  compu- 
tation of  the  results  of  operation  during  the  financial  year  1896, 
made  in  order  to  ascertain  the  true  balance  at  that  time,  there  was 
a  loss  on  the  telegraphs  of  13,059,127  marks,  and  a  gain  on  the 
telephones  of  4,183,185  marks.2  This  computation,  however,  only 
shows  the  balance  between  current  receipts  and  ordinary  operat- 
ing expenses.  The  fixed  charges  were  not  included.  When  allow- 
ance is  made  for  the  interest  on  the  capital  invested  in  the  tele- 
phone branch  of  the  undertaking  and  for  depreciation  of  plant, 
extremely  difficult  allowances  to  make  with  accuracy,  the  net 

1  A.  Wagner:  Finanzwissenschaft,  Part  ii,  2nd  edit.,  1890,  pp.  156-60. 

1  Stenographischer  Bericht  uber  die  Verhandlungen  des  Reichstages.  9.  Leg.-Per., 
$th  Session,  1897-98,  vol.  6,  p.  797;  and  10.  Leg.-Per.,  ist  Session,  1899,  vol.  a, 
pp.  17462. 


THE  GERMAN  FLAT  RATES  133 

surplus  is  reduced  nearly  to  a  million  marks.1  At  that  date,  there- 
fore, the  telephone  branch  of  the  undertaking  was  being  operated 
at  a  small  profit,  and  the  telegraphs  at  a  considerable  loss.  It  is 
probable  that  this  was  the  state  of  affairs  throughout  the  period 
during  which  the  original  telephone  rates  were  in  force.  In  that 
case,  the  general  level  of  those  rates  cannot  be  held  to  have  been 
unreasonable. 

For  a  considerable  period  the  normal  amount  of  discontent 
with  the  telephone  rates  was  expressed  in  the  form  of  a  demand 
for  a  further  general  reduction  rather  than  for  differentiation  as 
between  different  localities  or  classes  of  users.  These  demands 
found  utterance  not  only  in  the  reports  of  the  chambers  of  com- 
merce but  also  in  the  debates  of  the  Reichstag  on  the  occasion  of 
the  annual  discussion  of  that  section  of  the  budget  relating  to  the 
affairs  of  the  postal  and  telegraph  administration.  After  the  re- 
duction of  1884,  Stephan,  in  whose  judgment  and  good- will  com- 
mercial circles  in  general  had  a  large  measure  of  confidence,  in- 
variably declared  that  a  further  reduction  was  impossible.  These 
declarations,  however,  could  hardly  be  expected,  and  certainly 
were  not  by  Stephan  himself,  to  close  the  door  to  the  repetition 
of  the  demands  at  next  opportunity.  They  did  not  always  silence 
the  -advocates  of  lower  rates  even  for  the  moment. 

Thus  the  Chamber  of  Commerce  at  Stuttgart  observed  in  its 
annual  report  for  1888  that,  since  the  initial  difficulties  of  develop- 
ing the  service  were  then  overcome,  the  time  had  arrived  for  an- 
other reduction  of  rates.2  To  be  sure,  it  continued,  the  request 
seems  a  bit  inopportune  in  view  of  the  statements  of  the  Secretary 
of  State  for  the  imperial  postal  service  (Stephan)  at  the  last 
session  of  the  Reichstag.  Nevertheless,  it  would  venture  to  sug- 
gest that  steps  be  taken  to  make  the  exchange  service  cheaper. 
But  Stuttgart  was  not  in  the  imperial  telephone  area,  and  the  local 
business  interests  were  not  bound  to  show  so  much  deference  to 
the  opinions  of  the  imperial  authorities  as  were  the  telephone  users 
in  most  of  Germany.  The  confidence  of  the  Stuttgart  chamber 
in  its  local  authorities  was  not  disappointed.  In  1890  the  flat  rate 

1  H.  Schwaighofer:  Die  Grundlagen  der  Preisbildung  itn  elektrischen  Nachrichten- 
verkchr,  Munchen,  igo2,  p.  73.  a  HGK  Stuttgart,  1888,  p.  69. 


134  PUBLIC  OWNERSHIP  OF  TELEPHONES 

throughout  Wurtemberg  was  reduced  to  100  marks.  The  flat  rate 
for  an  unlimited  service  in  both  urban  exchange  area  and  suburbs, 
which  in  the  rest  of  the  empire  was  50  marks  more  than  the  or- 
dinary flat  rate,  or  200  marks  in  all,  was  reduced  to  125  marks. 
Finally,  unlimited  communication  throughout  the  entire  district  in 
the  vicinity  of  Stuttgart,  in  which  eight  separate  small  cities  were 
situated,  was  granted  for  150  marks,  the  amount  of  the  ordinary 
flat  rate  in  the  rest  of  Germany.  This  response  by  the  Wurtem- 
berg telephone  authorities  to  the  request  of  the  Stuttgart  Chamber 
was,  as  may  be  imagined,  a  source  of  great  satisfaction  in  Wurtem- 
berg commercial  circles.1 

This  reduction  in  Wurtemberg,  however,  greatly  increased  the 
desire  of  telephone  users  in  other  parts  of  Germany  to  secure  a 
reduction.  In  Munich,  for  example,  the  local  Chamber  of  Com- 
merce redoubled  its  efforts  to  secure  lower  rates.2  In  Bavaria, 
as  in  the  imperial  telephone  area,  the  rates  had  remained  un- 
changed at  the  level  established  in  1884.  All  the  varieties  of  ser- 
vice that  were  offered  in  Wurtemberg  were  also  obtainable  in 
Bavaria.  The  charge  for  line  in  excess  of  two  kilometers  from  the 
central  office  was  50  marks  instead  of  35  marks.  The  rates  for 
additional  connections  to  the  same  direct  line,  and  for  extension- 
instruments  in  the  offices  of  large  users,  were,  however,  the  same. 
The  rate  for  branch  telephones  in  office  buildings  and  apartment 
houses  was  50  marks  instead  of  the  slightly  cheaper  Wurtemberg 
rate.  Subscribers  paid  10  pfennigs  for  the  use  of  the  public  call 
stations,  as  in  Wurtemberg,  but  non-subscribers  paid  25  pfennigs.3 
In  1888  the  Munich  Chamber  began  the  agitation  for  lower  rates 
by  petitioning  for  an  extension  of  the  flat  rate  of  150  marks  to  all 
subscribers  no  matter  how  remote  from  the  central  office,  or  for 
a  readjustment  of  the  mileage  charges.4  This  request  was  refused. 
But  in  the  face  of  the  outburst  of  criticism  that  followed  the  reduc- 
tion in  Wurtemberg,  something  had  to  be  done. 

The  Bavarian  authorities,  however,  would  not  assent  to  such  a 

1  HGK  Stuttgart,  1890,  p.  54. 

a  HGK  Oberbayern,  1891,  pp.  36-38.  A  special  petition  was  sent  to  the  telephone 
authorities,  Oct.  10,  1891,  praying  for  the  reduction  of  the  exchange  rates  to  the 
Wurtemburg  level. 

3  A.  P.  T.,  1891,  pp.  701-709.  *  HGK  Oberbayern,  1888,  p.  45. 


THE  GERMAN  FLAT  RATES  135 

reduction  as  had  been  made  in  Wurtemberg.  The  matter  was  then 
carried  into  the  Landtag,  or  state  legislature.  The  representatives 
of  the  commercial  interests  of  the  large  cities,  especially  of  Munich 
(there  were  only  eleven  exchanges  in  all  Bavaria  in  1890),  argued 
strenuously  for  a  reduction.1  It  was  shown  that  the  existing  rates 
sufficed  to  defray  the  ordinary  operating  expenses  and  to  provide 
a  surplus  equivalent  to  over  12%  of  the  entire  capital  invested  in 
the  telephone  undertaking.  The  telephone  authorities  dig!  not 
deny  this,  but  asserted  that  these  large  profits  were  necessary  in 
order  to  allow  for  the  very  rapid  depreciation  of  telephone  plant. 
After  a  lively  debate,  they  succeeded  in  convincing  the  majority 
of  the  representatives  of  the  people  of  the  soundness  of  their  posi- 
tion.2 The  flat  rate  remained  at  150  marks.  Still  they  wished  to 
make  some  concession  to  the  telephone  users.  Accordingly  the 
radius  within  which  the  exchange  connection  would  be  made 
without  extra  mileage  charge  was  increased  from  two  to  five 
kilometers.  This  distance  in  Bavarian  cities,  even  in  one  of  the 
size  of  Munich  (which  contained  538,983  inhabitants  in  1905),  was 
ample  enough  to  include  practically  every  exchange  subscriber. 

The  Bavarian  commercial  interests,  however,  refused  to  be 
satisfied  with  this  decision.  The  next  year  they  renewed  their  plea 
for  a  reduction  of  the  flat  rate.3  The  attempt  made  in  1893,  like 
the  earlier  one,  failed  because  a  majority  in  favor  of  the  reduction 
could  not  be  secured  in  the  Bavarian  Landtag.  In  1896  again 
there  is  evidence  in  the  annual  report  of  the  Munich  Chamber 
of  Commerce  that  a  vigorous  attempt  had  been  made  to  secure 
the  long-desired  reduction.4  On  this  occasion  the  lower  house  of 
the  legislature  resolved  to  request  the  telephone  administration 
to  reduce  the  flat  rate  to  100  marks.5  The  Munich  Chamber  at 
once  renewed  its  old  efforts,  but  the  attempt  was  frustrated  by 
the  refusal  of  the  upper  house  to  concur  in  the  resolution  of  the 

1  HGK  Oberbayern,  1892,  p.  92. 

1  Debate  in  the  Landtag  on  Nov.  13,  1891,  and  Mar.  21,  1892.  Cf.  especially, 
speech  of  Baron  von  Stauffen  on  former  date,  and  those  of  the  minister  in  charge 
of  the  telephones  on  both  occasions. 

1  HGK  Oberbayern,  1893,  pp.  81-85.  *  /&**••  1896,  pp.  103-105. 

5  Stenographischer  Bericht  der  Verhandlungen  der  Rammer  der  Abgeordneien,  Feb. 
25,  1896- 


136  PUBLIC  OWNERSHIP  OF  TELEPHONES 

lower.  As  in  the  two  earlier  cases,  when  the  matter  was  carried 
into  the  legislature,  the  telephone  authorities  protested  that  their 
profit  was  not  excessive,  but  was  indispensable  in  order  to  cover 
the  rapid  depreciation  of  telephone  plant.  At  this  period,  when 
they  were  introducing  multiple  switchboards  in  the  large  exchanges, 
putting  their  local  wires  underground,  and  equipping  long-dis- 
tance lines  with  metallic  circuits,  they  had  little  difficulty  in 
convincing  the  keepers  of  the  public  purse-strings  that  their  posi- 
tion was  a  reasonable  one.  In  the  following  year  there  were  the 
usual  number  of  complaints  concerning  the  height  of  telephone 
rates  in  the  special  reports  and  the  correspondence  of  business 
firms,  printed  in  the  annual  report  of  the  Munich  Chamber  of 
Commerce,  but  none  was  indorsed  by  the  Chamber  itself.  For  the 
time  the  struggle  was  abandoned. 

The  attempts  of  the  Munich  Chamber  of  Commerce  to  secure 
a  reduction  of  rates  were  always  supported  by  the  other  Bavarian 
commercial  interests.  Thus,  the  Nuremberg  Chamber  sent  in  a 
memorial  to  the  telephone  administration  in  1891,  praying  that  the 
flat  rate  be  at  least  cut  in  half.1  In  1892  and  1893  it  reaffirmed 
the  same  position.  In  1893  its  [opinion  was  that  "a  reduction  of 
the  telephone  rate  to  50  marks  seems  in  all  respects  justifiable," 
and  the  Nuremberg  Chamber  only  joined  in  the  more  modest 
request  of  the  Munich  Chamber  for  a  reduction  to  100  marks, 
because  it  feared  that  a  greater  reduction  might  be  impracticable. 

It  is  not  necessary  to  follow  further  the  criticism  of  telephone 
rates  by  the  commercial  interests  of  Bavaria.  Obviously  at  this 
period  they  were  the  only  interests  in  the  community  that  dis- 
played any  noteworthy  concern  for  the  development  of  the  tele- 
phone service.  In  the  legislature  the  chief  concern  of  the  majority 
of  the  representatives  of  the  Bavarian  people  was  not  in  cheap 
rates,  but  in  the  protection  of  the  public  treasury  against  the 
danger  of  loss  through  bad  management  of  the  telephone  business. 
Meanwhile  those  sections  of  the  community  which  were  inter- 
ested in  the  telephone  subjected  the  administration  to  a  running 
fire  of  criticism,  the  purpose  of  which  was  to  secure  the  best 
possible  service  at  the  prevailing  scale  of  rates. 

1  HGK  Mittelfranken,  1891,  p.  49;  1892,  p.  53;  1893,  p.  51. 


THE  GERMAN  FLAT  RATES  137 

The  movement  for  a  reduction  of  telephone  rates  in  Bavaria 
reproduces  both  the  methods  employed  and  the  results  achieved 
by  the  similar  movement  in  the  imperial  telephone  area.  In  the 
larger  area,  however,  the  homogeneity  of  interests  among  the 
users  of  the  telephone,  which  marks  the  early  history  of  the  agi- 
tation for  lower  rates  in  Bavaria,  did  not  endure  so  long.  In  the 
empire  at  large  there  was  a  greater  divergence  between  different 
individual  and  local  needs  for  telephone  service  than  manifested 
itself  in  Bavaria.  In  the  latter  state  one  flat  rate  could  be  equally 
satisfactory  to  all  classes  of  users  for  a  considerable  period.  In 
the  empire,  on  the  other  hand,  a  differentiation  of  interests  be- 
tween different  users  of  the  telephone  service,  more  marked  than 
had  been  contemplated  by  the  original  schedule  of  rates,  more 
quickly  made  an  appearance. 

In  the  nature  of  things,  the  policy  of  charging  for  telephone 
service  on  the  basis  of  one  single  flat  rate  for  all  exchanges  through- 
out a  huge  empire  like  Germany  could  not  indefinitely  remain 
a  reasonable  one.  The  commercial  interests  in  the  medium-sized 
cities,  to  which  the  exchange  service  was  quickly  extended  after 
its  first  introduction  into  the  largest  business  centers,  were  not 
slow  to  discover  that  the  service  was  not  so  useful  to  them  as  it 
was  -in  the  larger  places.  In  the  latter,  the  number  of  possible 
connections,  and  at  that  period  in  Germany  the  number  of  pos- 
sible connections  was  nearly  identical  with  the  number  of  desirable 
connections,  was  much  greater.  The  distances  saved  by  telephon- 
ing were  also  greater  than  in  the  compactly  built  middle-sized 
cities.  This  inequality  increased  steadily  with  the  steady  extension 
of  exchange  service.  In  1885  there  were  exchange  systems  in 
eighty-one  cities  in  the  imperial  telephone  area.  In  1890  the  num- 
ber of  places  with  exchange  service  had  increased  to  258,  and  in 
1895  to  534.  In  1885  the  service  had  scarcely  gained  a  footing  in 
places  with  less  than  50,000  inhabitants.  A  decade  later  its  use 
was  already  widespread  in  business  circles  in  much  smaller  places. 
The  time  for  a  readjustment  of  rates  had  arrived. 

The  necessity  for  a  differentiation  of  the  flat  rates  in  order  to 
bring  them  into  closer  accord  with  the  different  conditions  that 
prevailed  in  different  places  was  foreshadowed  in  the  very  earliest 


138  PUBLIC  OWNERSHIP  OF  TELEPHONES 

criticism  of  the  telephone  administration's  rate- policy.  Thus  at 
the  convention  of  the  German  chambers  of  commerce  held  early 
in  1884,  the  reduction  of  the  flat  rate  from  200  marks  to  150  marks 
was  urged  out  of  a  special  regard  for  the  medium-sized  cities,  in 
which  the  commercial  interests  could  not  so  well  afford  the  higher 
rate  as  in  the  larger  places.1  Later  in  the  same  year,  the  reduction 
was  made,  but  its  benefits  were  not  confined  to  the  places  which 
were  asserted  to  have  needed  it  most.  In  1887  the  Chamber  of 
Commerce  at  Wiesbaden  proposed  the  introduction  of  a  graduated 
schedule  of  flat  rates  with  a  view  to  reducing  the  cost  of  the  ser- 
vice to  users  in  the  smaller  commercial  centers.2  The  German 
Handelstag,  at  its  meeting  in  1892,  devoted  a  good  deal  of  atten- 
tion to  the  telephone  administration.3  Besides  criticising  the  pro- 
posed legislation  of  1891,  by  which  the  administration  had  desired 
to  strengthen  its  legal  position,  and  its  policy  of  requiring  guaran- 
tees for  the  construction  of  long-distance  lines,  the  Handelstag 
expressed  the  opinion  that  the  existing  schedule  of  exchange  rates 
was  founded  on  an  unsound  principle.  It  recommended  the  intro- 
duction of  a  more  accurate  measured  service  rate,  composed  of  a 
fixed  charge  per  annum  of  30  marks  for  each  direct  connection, 
plus  a  variable  charge  according  to  the  number  of  conversations. 
At  its  meeting  in  1895,  it  reiterated  these  views,  and  formally 
resolved  that  the  proper  extension  of  telephone  service  was  im- 
possible unless  the  rate  was  reformed.4 

The  agitation  in  favor  of  a  modification  of  telephone  rates  was 
continuous  throughout  this  period.  Yet  it  produced  no  result. 
The  explanation  of  this  failure  does  not  lie  in  any  unreasonable 
attitude  on  the  part  of  the  telephone  administration.  Stephan 
would  have  been  the  last  to  have  asserted  that  his  schedule  of 
rates  conformed  to  ideal  justice.  On  the  contrary,  he  admitted 
repeatedly  that  the  principle  of  a  single  flat  rate  in  all  exchange 
systems  throughout  the  empire  was  defective. 

Thus  in  the  debate  that  arose  in  the  Reichstag  in  1891  over  the 

1  Proceedings  of  the  I2th  German  Handelstag.  Cf .  HGK  Stuttgart,  1883,  p.  100. 

*  HGK  Wiesbaden,  Gutachten,  1887. 

1  Proceedings  of  the  i?th  German  Handelstag,  1892. 

4  Ibid.i  1895,  session  of  Feb.  28. 


THE  GERMAN  FLAT  RATES  139 

postal  and  telegraph  budget  the  system  of  telephone  rates  was 
vigorously  criticised.1  Stephan  replied  that  he  knew  a  basis  of 
charge  according  to  the  number  of  messages  would  be  more  equit- 
able, but  he  was  prevented  from  introducing  a  schedule  of  rates 
based  on  that  principle  by  the  lack  of  a  cheap  and  reliable  means 
of  counting  the  messages.  The  substitution  of  a  message  rate 
for  the  flat  rate  was  impossible  unless  the  number  of  effective 
connections  could  be  correctly  recorded.  But  no  mechanical 
or  electrical  device  had  been  invented  which  would  count  accu- 
rately the  number  of  effective  connections,  and  subscribers  could 
not  well  be  asked  to  pay  for  conversations  which  had  never 
taken  place.  Manual  methods  of  counting  were  unsatisfactory, 
because  they  gave  the  subscriber  no  security  against  careless  or 
malicious  overcharge  by  the  exchange  operators  and  exposed  the 
telephone  revenues  to  the  danger  of  depletion  by  fraudulent  prac- 
tices. 

But  these  technical  difficulties  in  the  way  of  the  introduction 
of  message  rates  did  not  justify  an  indefinite  maintenance  of  the 
single  flat  rate.  It  was  always  possible  to  introduce  a  graduated 
schedule  of  flat  rates.  Such  a  modification  of  the  existing  rates 
would  not  have  favored  the  small  users  in  any  one  locality  as 
against  the  large  users,  but  it  would  have  favored  the  smaller 
localities.  Moreover  it  was  local,  not  personal,  differentiation  that 
was  wanted  at  that  time.  It  was  a  reform  in  this  sense  that  was 
proposed  by  the  Wiesbaden  Chamber  in  1887.  The  same  idea  also 
underlay  much  of  the  criticism  of  the  administration's  rate  policy 
on  the  part  of  the  Handelstag,  although  the  specific  scheme  pro- 
posed by  it  in  1892  was  based  on  a  different  principle.  That  a 
change  of  this  nature  was  not  brought  about,  the  German  com- 
mercial interests  had  chiefly  themselves  to  blame. 

The  German  chambers  of  commerce  could  not  unite  on  and 
adhere  to  a  common  program  of  reform.  On  the  contrary,  each 
insisted  that  it  was  as  much  entitled  as  any  other  to  the  benefit 
of  the  prospective  reduction.2  The  representatives  of  the  medium- 

1  Cf.  E.  T.  Z.,  1891,  p.  690. 

1  Cf.  R.  van  der  Borght:  "Die  Tatigkeit  der  deutschen  Handelskammern  im 
Jahre  1889,"  Jahrbuchfur  National-Ockonomie  und  Slatistik,  vol.  56,  pp.  412-24. 


140  PUBLIC  OWNERSHIP  OF  TELEPHONES 

sized  and  small  cities  asserted  that  the  service  was  worth  less  to 
them.  Accordingly,  they  desired  the  benefit  of  any  reduction  of 
rates  that  was  to  be  made.  The  other  party  retorted  that  the 
service  cost  less  in  the  large  cities  and  hence  they  should  receive 
the  benefit.  In  business  circles  there  was  no  agreement  except  that 
lower  rates  were  desirable.  But  another  general  reduction  was 
out  of  the  question,  and  while  the  general  level  of  rates  remained 
as  it  was  no  party  could  secure  a  reduction  except  at  the  expense 
of  the  others.  Under  these  circumstances  the  telephone  authori- 
ties can  hardly  be  condemned  for  leaving  the  existing  rates  alone. 
They  could  not  hope  to  give  general  satisfaction  whatever  policy 
they  might  adopt.  The  introduction  of  rate  discrimination  be- 
tween different  localities  was  simply  postponed  until  the  persons 
most  interested  should  come  to  some  sort  of  an  agreement. 

The  failure  of  the  chambers  of  commerce  to  unite  on  a  common 
program  of  reform  seems  to  have  been  caused  by  their  ignorance 
j  of  the  real  nature  of  the  telephone  business.  Nobody  seemed  to 
know  whether  the  expense  of  rendering  telephone  exchange  ser- 
vice was  greater  or  less  in  large  than  in  small  exchange  systems. 
The  prevailing  opinion  in  commercial  circles  at  that  time  was  that 
the  expense  of  conducting  an  exchange  business  tended  to  fall 
per  subscriber  as  the  number  of  subscribers  increased  on  account 
of  what  were  supposed  to  be  the  economies  of  conducting  exchange 
operations  on  a  large  scale.  Van  der  Borght  in  his  work  on  trans- 
portation took  this  view.  He  even  went  so  far  as  to  propose  a 
graduated  schedule  of  flat  rates  for  places  of  different  size,  accord- 
ing to  which  the  lowest  rates  would  have  been  introduced  into 
the  biggest  places.1  The  ordinary  business  man  overlooked  the 
counteracting  influences  which  operate  with  especial  force  in 
young  and  rapidly  growing  systems.  This  was  a  mistake  which 
was  shared  by  many  telephone  authorities  themselves.  In  France, 
for  example,  when  the  government  first  went  into  the  telephone 
business,  it  established  rates  for  its  exchange  service  which  were 
to  be  reduced  as  soon  as  the  number  of  subscribers  should  exceed 
300.2  The  opposite  view,  namely,  that  the  cost  of  service  was 

1  Van  der  Borght:  Das  Verkehrswesen,  1894,  pp.  408-411. 

2  See  post,  Part  III,  chapter  IV. 


THE  GERMAN  FLAT  RATES  141 

greater  in  large  than  in  small  exchange  systems,  was  set  forth  as 
early  as  1887, l  but  at  that  time  not  generally  accepted,  at  least  not 
in  business  circles,  as  correct.  Telephone  users  failed  to  realize  the 
effect  on  the  expenses  of  rendering  telephone  service  of  the  higher 
standards  of  construction  and  operation  demanded  in  important 
commercial  centers,  as  compared  with  the  less  exacting  require- 
ments of  second  and  third  rate  cities.  The  effect  of  these  hazy  or 
mistaken  notions  in  regard  to  the  cost  of  service  was  to  produce 
the  actual  conflict  within  the  commercial  circles  themselves.  An 
arbitrary  telephone  administration  would  have  taken  the  matter 
into  its  own  hands  and  settled  the  question  regardless  of  the  wishes 
of  the  telephone  users.  But  the  German  was  not  that  kind  of  an 
administration.  Perhaps,  also,  it  was  not  then  sure  in  its  own 
mind  what  the  tendency  of  the  future  changes  in  the  cost  of  con- 
ducting exchange  operations  would  prove  to  be. 

In  one  respect  the  German  telephone  authorities  were  undoubt- 
edly remiss.  There  was  another  way  of  providing  for  the  needs  of 
the  smaller  users.  The  telephone  administration  could  have  en- 
couraged the  use  of  public  call  offices  in  connection  with  the 
exchange  systems.  In  1890  there  were  only  97  such  offices  in  use. 
This  number  was  wholly  inadequate.  In  many  exchange  areas 
there  were  no  call  offices  at  all.  The  Handelstag  of  1892  called  the 
administration's  attention  to  this  deficiency  and  urged  that  the 
number  be  greatly  increased.  Yet  in  1895  it  had  risen  only  to  215. 
The  establishment  of  public  call  offices,  however,  could  not  alter 
the  distribution  of  the  burden  of  telephone  service  upon  different 
localities.  At  that  time  the  differentiation  of  rates  as  between 
different  persons  in  the  same  locality  was  not  felt  to  be  equally 
important. 

The  deadlock  between  the  representatives  of  the  commercial 
interests  of  the  empire  in  regard  to  the  reform  of  telephone  rates 
was  broken  by  an  attack  from  an  unexpected  quarter.  It  has  been 
previously  explained  how  the  telephone  was  first  introduced  into 
Germany  in  order  to  connect  outlying  villages  with  the  general 
telegraph  system.  This  use  of  the  telephone  as  a  substitute  for  the 
telegraph  rilled  a  general  need,  and  the  number  of  such  rural  tele- 
1  A.  P.  T.,  1887,  pp.  710-715. 


142  PUBLIC  OWNERSHIP  OP  TELEPHONES 

graph  offices  operated  by  telephone  increased  very  rapidly.  In 
1890  the  total  number  of  rural  telegraph  offices  was  11,447.  Of 
these  5,837,  or  over  50%,  were  operated  by  telephone,  and  the 
proportion  of  villages  which  were  brought  into  closer  connection 
with  the  outer  world  by  that  means  continued  to  increase.  Yet 
the  time  could  not  be  indefinitely  deferred  when  the  rural  com- 
munities would  desire  a  telephone  service  which  would  bring  them 
into  direct  connection  with  the  urban  exchange  system.  More- 
over, and  this  was  especially  significant  in  the  present  connection, 
exchange  facilities  were  beginning  to  be  desired  in  the  small  rural 
cities  which  form  so  characteristic  a  feature  of  German  rural  life. 
During  the  years  following  1890  the  perception  of  this  want  be- 
came more  and  more  widespread  in  rural  Germany.  The  monop- 
oly of  the  use  of  the  exchange  service  by  the  commercial  classes 
and  the  urban  districts  was  clearly  doomed.  Yet  these  small 
semi-mediaeval  rural  cities  had  little  use  for  the  telephone  at  the 
existing  scale  of  rates.  For  their  modest  requirements  they  desired 
to  pay  a  more  modest  price.  But  at  first  the  rural  population 
had  difficulty  in  making  its  wants  known.  The  agricultural  cham- 
bers were  not  organized  until  1894  and  did  not  immediately  attain 
their  full  effectiveness.  Consequently  the  scene  in  the  next  phase 
of  the  struggle  for  the  reform  in  the  telephone  rates  was  laid  in 
the  Reichstag  itself. 

The  necessity  of  submitting  the  annual  budget  to  the  approval 
of  a  popular  branch  of  the  imperial  legislature  afforded  the  rural 
representatives  the  wished-for  opportunity  to  make  known  the 
wants  of  their  constituents.  In  the  early  years  of  the  telephone 
only  the  representatives  of  the  urban  commercial  interests  partici- 
pated prominently  in  these  debates.  Gradually  the  representa- 
,  tives  from  the  rural  districts  began  to  show  a  livelier  concern  for 
telephone  matters,  until  finally  they  came  to  play  the  preponder- 
ating part  in  such  discussions.  The  turning-point  in  the  history 
of  the  criticism  of  German  telephone  rates  is  fairly  accurately 
marked  by  the  fall  of  Count  Caprivi  in  1894.  Under  his  successor 
in  the  imperial  chancellorship,  Prince  Hohenlohe,  the  commercial 
classes  lost  the  dominating  influence  over  German  political  affairs 
which  they  had  held  under  Caprivi,  and  the  special  interests  of  the 


THE  GERMAN  FLAT  RATES  143 

agricultural  classes  received  greater  consideration.  The  dissatis- 
faction of  the  rural  interests  with  the  government's  telephone 
policy  culminated  with  the  debate  over  the  budget  for  the  year 
1898. 

On  this  occasion  the  injustice  of  a  single  flat  exchange  rate  both 
for  great  commercial  centers  and  for  small  rural  villages  was 
brought  vigorously  to  the  attention  of  the  telephone  administra- 
tion. Thus  one  of  the  rural  representatives,  Dr.  Hammacher, 
declared: l  "The  rate  of  150  marks  for  a  single  telephone  connec- 
tion in  the  rural  districts  of  Silesia  is  utterly  unreasonable.  .  .  . 
Universal  flat  rates  cannot  be  maintained.  They  must  be  adapted 
to  the  various  local  conditions."  The  minister  at  that  time  in 
charge  of  postal  and  telegraph  affairs,  von  Podbielski,  was  earn- 
estly desirous  of  promoting  the  welfare  of  the  rural  districts  and 
did  not  attempt  to  defend  the  existing  policy  of  his  administration. 
He  promised  that  a  change  should  be  made  at  once. 

The  difficulty  was  that  he  could  not  see  his  way  clear  to  reducing 
the  rates  for  the  benefit  of  the  rural  districts  without  raising  them 
in  the  urban  exchange  areas.  The  expediency  of  avoiding  a  diminu- 
tion of  the  telephone  revenues  at  that  moment  was  particularly 
clear.  It  was  already  apparent  that  the  introduction  of  metallic  cir- 
cuits in  the  urban  exchange  systems  could  not  long  be  deferred, 
and  the  probability  was  steadily  becoming  greater  that  this  change 
would  have  to  be  made  at  the  expense  of  the  telephone  authorities 
themselves.  Hence,  in  the  near  future,  expenditures  were  almost 
certain  to  increase.  Yet  even  without  this  additional  source  of  ex- 
pense, it  was  impossible  to  do  justice  to  the  rural  communities 
unless  the  receipts  of  the  telephone  administration  from  the  ser- 
vice as  a  whole  were  increased.  Under  the  circumstances  there 
was  no  alternative  but  to  take  the  bull  by  the  horns.  Von  Pod- 
bielski resolved  upon  a  thorough  reform  of  the  entire  basis  of  tele- 
phone rates.  The  big  commercial  interests  should  be  required  to 
pay  more  for  their  telephone  service,  and  the  task  of  appeasing 
their  wounded  feelings  should  be  left  to  the  Parliament  which  had 
declared  the  reform  to  be  necessary. 

The  continuation  of  the  conflict  in  the  Reichstag  by  the  repre- 

1  Stenogr.  Berichte  iiber  die  V  erhandlungen  des  deutschen  Reichstages ,  Feb.  2,  1898. 


144  PUBLIC  OWNERSHIP  OF  TELEPHONES 

sentatives  of  the  large  urban  users  could  not  indeed  well  be 
avoided.  By  one  clause  of  the  legislative  compromise  of  1892 
between  the  telephone  administration  and  the  critics  of  its  policy 
with  regard  to  the  power-circuit  undertakings,  its  previously 
unlimited  power  to  fix  rates  was  seriously  restricted.  One  party, 
indeed,  in  the  committee  of  the  Reichstag,  to  which  the  govern- 
ment's proposals  had  been  referred,  had  wished  to  deprive  the 
telephone  administration  of  all  its  independent  power  over  the 
rates.  This  view  had  not  prevailed,  but  a  provision  was  inserted 
in  the  final  draft  of  the  bill,  according  to  which  the  telephone 
administration  might  reduce  rates  whenever  it  pleased,  but  should 
not  increase  them  without  the  consent  of  the  Reichstag.  In  this 
form  the  bill  became  law.  Consequently  it  was  now  impossible 
for  the  telephone  administration  to  carry  out  its  scheme  of  reform 
without  running  the  gauntlet  of  a  thorough  parliamentary  criti- 
cism. 

The  telephone  authorities  introduced  their  proposals  for  the 
reform  of  the  exchange  rates  into  the  session  of  the  Reichstag 
following  that  in  which  they  had  promised  to  make  a  change  in 
the  interests  of  the  rural  districts.1  The  nature  of  the  proposed 
reform  was  to  abandon  entirely  the  flat  rate  for  an  unlimited  ser- 
vice as  a  basis  of  charge.  The  administration  declared  that  the 
principle  of  flat  rates  was  false  and  should  not  be  retained  even 
in  the  modified  form  of  a  graduated  schedule,  by  which  the  flat 
rate  should  be  reduced  in  amount  in  correspondence  with  the 
diminishing  size  of  exchange  systems.  It  recognized  the  exist- 
ence of  different  standards  of  construction  and  service  in  large  and 
small  places  and  their  influence  on  the  expenses  of  rendering  the 
service.  However,  it  did  not  propose  to  reform  the  existing  rates 
solely  on  the  basis  of  differences  in  cost  of  service.  It  considered 
of  equal  importance  the  adjustment  of  the  charge  in  each  area  to 
differences  in  the  use  of  the  service  in  the  various  areas.  Conse- 
quently the  administration  devised  a  system  of  charge  by  which 
differences  both  in  the  cost  and  in  the  use  of  the  exchange  service 
were  taken  into  consideration.  This  system  of  charge  was  founded 
on  the  combination  of  a  fixed  or  ground  rate  with  a  variable  or 
1  Entwurf  einer  Ferns  prechgebiihren-Ordnung,  A.  P.  T.,  1899,  pp.  281-313. 


THE  GERMAN  FLAT  RATES  145 

message  rate.  The  ground  rate  was  based  solely  on  the  fixed 
charges  of  rendering  the  exchange  service,  and  was  graduated 
in  order  to  correspond  as  nearly  as  possible  to  their  variation  in 
different  exchange  areas.  The  message  rate  was  intended  to  cover 
only  that  portion  of  the  operating  expenses  which  varies  directly 
with  the  number  of  messages. 

The  administration's  plan,  however,  did  not  contemplate  the 
logical  application  of  the  principle  of  a  measured-service  rate. 
The  telephone  authorities  did  not  propose  to  establish  the  variable 
portion  of  the  new  exchange  rate  on  a  personal  basis  by  charging 
each  subscriber  for  the  actual  number  of  messages  originating  at 
his  station,  but  to  compute  it  on  the  basis  of  the  average  number 
of  messages  per  subscriber's  station  in  each  exchange  area.  The 
sum  thus  separately  ascertained  for  each  area  was  to  be  charged 
to  all  subscribers  in  each  area,  regardless  of  the  differences  in  their 
individual  use  of  the  service.  Every  three  years  this  sum  was  to 
be  redetermined.  Hence,  the  proposed  reform  of  1899  was  cal- 
culated to  establish  a  larger  measure  of  justice  in  the  charges  for 
telephone  exchange  service  as  between  different  localities,  but  not 
as  between  different  persons. 

At  the  same  time  the  telephone  administration  took  advantage 
of  the  opportunity  to  reform  the  long-distance  rates.  Hitherto 
a  message  had  been  sent  any  distance  for  one  mark.  Not  long 
before  the  proposed  reform  of  1899  even  lower  rates  had  been 
introduced  for  short  distances.  In  1897  a  charge  of  25  pfennigs 
for  long-distance  talks  of  not  more  than  50  kilometers  had  been 
introduced.  The  progress  of  the  telephone  industry,  however, 
had  caused  these  rates  to  become  greatly  out  of  accord  with  the 
actual  condition  of  the  service.  They  had  been  originally  estab- 
lished when  the  long-distance  system  was  in  its  infancy.  Distances 
were  short  and  the  standard  of  service  less  exacting  than  it  had 
come  to  be  with  the  later  increase  of  length  of  the  long-distance 
lines.  Copper  wires  had  been  substituted  for  the  cheaper  but  less 
efficient  iron,  and  metallic  circuits  had  been  introduced  in  place  of 
the  unsatisfactory  single  wires  with  earth  return.  To  a  certain 
extent  these  causes  of  increased  expense  had  been  neutralized  by 
savings  in  other  ways.  The  use  of  the  more  expensive  paper- 


146  PUBLIC  OWNERSHIP  OF  TELEPHONES 

insulated  air-space  cables  in  the  place  of  open  wires,  for  example, 
brought  an  enormous  saving  in  the  charges  for  maintenance.  But 
nothing  could  counteract  the  steady  increase  in  length  of  long- 
distance connections.  Unlike  that  of  the  telegraph,  the  expense 
of  working  the  long-distance  telephone  increases  rapidly  with  the 
increase  of  distance.  The  material  for  telegraph  construction  is 
relatively  cheaper  than  that  for  the  long-distance  telephone,  and 
the  quantity  of  labor  required  to  operate  it  is  more  nearly  propor- 
tionate to  the  number  of  despatches.  Hence,  in  the  telegraphic 
service,  the  number  of  words  serves  tolerably  well  as  a  basis  of 
charge.  But  in  the  long-distance  telephone  service,  a  similar  basis 
of  charge  —  the  duration  of  a  conversation  —  is  unsatisfactory. 
Allowance  must  be  made  for  the  distance  covered  by  the  message. 
This  allowance,  the  administration  declared,  under  the  existing 
schedule  of  long-distance  rates  was  wholly  inadequate. 

The  effect  of  the  telephone  authorities'  proposals  was  expected 
to  be  primarily  to  make  the  telephone  service  more  available  to 
the  rural  communities,  and  to  establish  the  finances  of  the  under- 
taking as  a  whole  on  a  sounder  and  more  rational  basis.  Inci- 
dentally, they  would  settle  the  deadlock  between  the  large  and 
small  urban  communities  in  favor  of  the  latter.  But  in  order  to 
accomplish  these  results  in  the  way  proposed  by  the  telephone 
administration,  it  was  necessary  to  increase  materially  the  cost 
of  the  telephone  service  in  the  large  exchange  areas.  The  actual 
schedule  proposed  for  large  exchange  systems  was  as  follows:  — 

Ground  Rate  Message  Rate  Long-distance  Rate 

Number  of  Distance  not 

*      .,  Mks.        Messages         Marks  .,          MRS. 

subscribers  more  man 

Not  over  1,000    60.       istsoo1          20.  (4pf.each)  50  km.  0.25 

1,000-5,000          75.       2nd  &  3rd       15.  (3  "   "     )      50-100  '  0.50 

5,000-20,000        90.       4th,  5th,  6th    10.  (2  "   "    )     100-500"  i.oo 

Over  20,000       100.       Excess  10.  500-1000  "  1.50 

Over  1000  "  2.00 

As  a  result  of  the  proposed  readjustment  in  the  exchange  rates, 
the  cost  of  telephone  service  would  have  been  increased,  according 

1  But  in  exchange  areas  where  average  should  be  less  than  500,  the  rate  should  be 
5  pfennigs  each,  and  minimum  amount  20  marks. 


THE  GERMAN  FLAT  RATES  147 

to  a  computation  made  in  the  spring  of  1898,  in  sixteen  places, 
would  have  remained  the  same  in  twenty-one  places,  and  would 
have  been  diminished  in  the  other  515  of  the  existing  552  exchange 
areas.1  When  the  number  of  subscribers  in  the  different  places 
is  taken  into  consideration,  however,  the  proposed  reform  is  seen 
to  be  more  drastic.  On  the  basis  of  the  distribution  of  subscribers 
on  April  ist,  1898,  the  maximum  ground  rate  would  apply  to  30,405 
subscribers;  the  second  highest  to  22,993; the  third  to  32,421.  and 
the  minimum  to  43,673.  The  maximum  ground  and  message  rates 
would  not  necessarily  fall  together,  but  in  general  the  proposed 
reform  meant  an  increase  of  rates  to  all  users  in  the  large  and  busy 
commercial  centers.2 

This  proposal  was,  as  may  well  be  expected,  greeted  by  a  storm 
of  disapproval  on  the  part  of  the  interests  to  be  injuriously 
affected,  the  users  in  the  large  cities.  They  naturally  preferred 
that  the  existing  situation  should  be  left  alone.  For  some  time 
they  had  been  realizing  more  and  more  that  they  were  the  chief 
beneficiaries  under  the  single  flat  rate.  It  was  this  realization  that 
explains  the  abandonment  of  the  agitation  against  the  Bavarian 
rate  by  the  Chamber  of  Commerce  at  Munich.  The  same  conscious- 
ness of  the  true  location  of  their  own  interests  had  produced  a 
similar  result  in  the  other  leading  commercial  centers  of  the  em- 
pire. In  his  speech  before  the  Elektrotechnischer  Verein*  in  the 
autumn  of  1894,  Stephan  had  boasted  that  the  Berlin  exchange 
system  was  the  largest  in  the  world,  that  it  was  indeed  not  only 
larger  but  increasing  more  rapidly  than  the  telephone  system  of 
the  entire  republic  of  France,  and  this  boast  was  justified  by 
the  facts.  The  big  commercial  interests  had  every  reason  to  be 
satisfied  both  with  the  service  and  with  the  rates  which  they  were 
enjoying.  Nor  did  they  fail  to  appreciate  their  situation.  Thus, 
the  reports  of  the  Chamber  of  Commerce  at  Frankfort,  one  of  the 
cities  which  was  destined  to  contribute  most  heavily  towards  the 

1  A.  P.  T.,  1899,  p.  286. 

1  Stenogr.  Berichte  uber  die  Verhandlungen  des  Reichstages,  10  Leg.-Per.,  1898-1900, 
3.  Anlageband,  pp.  2441-2462,  Nr.  387.  Bericht  der  XI V.  Kommission  uber  den  dersel- 
ben  zur  Vorberatung  iiberwiesenen  Entwurf  einer  Fernsprechgebiihren-Ordnung.  (Cited 
as  XIV.  Kom.  1899.)  App.,  8. 

3  Cf.  report  of  annual  meeting,  Oct.  23,  1894,  in  next  issue  of  E.  T.  Z. 


148  PUBLIC  OWNERSHIP  OF  TELEPHONES 

cost  of  this  telephone  reform,  had  nothing  but  praise  for  the  tele- 
phone administration  during  the  years  immediately  preceding  the 
proposal  of  1899. 1  When  the  nature  of  the  contemplated  changes  in 
the  rates  was  made  known,  however,  it  sent  in  a  vigorous  protest 
to  the  Reichstag.  It  urged  that  no  increase  be  made  in  the  exist- 
ing rate  in  large  cities,  nor  change  to  message  rates,  nor  increase 
of  the  long-distance  rate  for  distances  about  500  kilometers.  It 
was  willing  enough  that  the  rates  should  be  reduced  for  the  small 
places,  but  strongly  averse  to  the  reduction  being  made  at  its 
expense.2 

In  the  Reichstag,  however,  the  representatives  of  the  large 
places  were  destined  to  be  overcome  both  by  force  of  argument 
and  by  force  of  numbers.  The  administration's  plan  of  reform  was 
referred  by  the  Reichstag  to  a  special  committee,  before  which  the 
telephone  administration  showed  conclusively  both  the  necessity 
for  a  differentiation  of  rates  as  between  different  localities,  and 
that  for  the  maintenance  of  the  existing  general  level  of  rates.  It 
computed  the  cost  of  service  in  exchange  systems  of  the  four 
different  classes  which  served  as  the  basis  of  the  proposed  reform 
of  rates  by  the  following  method:3  (a)  it  multiplied  the  average 
cost  of  a  single  line  per  kilometer  (which  it  declared  to  be  143 
marks)  by  the  average  length  of  line  in  each  of  the  four  different 
classes  of  exchange  systems,  (b)  To  this  product  it  added  the 
cost  of  the  subscriber's  telephone  station,  and  (c)  the  subscriber's 
share  of  the  cost  of  the  central  office  and  exchange  equipment. 
Thus  it  reached  the  following  result:  — 

In  exchange  systems  containing 

Not  mare  than  ooo         5OOI.2O>OOO  More  than 

1000  subscribers  20,000 

A.  i.iXi43=I57-3    i.8Xi43=2574    2.2Xi43=3I4-6    2.6Xi43=37i-8 

B.  .  100  100  100  100 

C.  19  35  IPO  115 
Total            '  276.3                     392.4                     514.6                  '  586.8 

1  Cf.  Mitteilungen  aus  der  Handelskammer  zu  Frankfurt-am-Main.  (The  official 
organ  of  the  chamber.)  1896-1900.  Passim. 

7  Ibid.,  XXII.  Jahrgang  (1899),  pp.  18-20. 

8  XIV.  Kom.  1899,  App.  7. 


THE  GERMAN  FLAT  RATES  149 

In  reality  this  computation  is  subject  to  a  large  percentage  of 
error.  First,  the  cost  of  construction  of  a  kilometer  of  line  could 
not  be  legitimately  expressed  as  an  average  for  all  localities.  In 
fact,  it  was  much  higher  in  the  places  with  a  high  standard  of 
service  than  in  the  smaller  places.  Moreover,  this  comparison 
makes  no  allowance  for  maintenance  charges,  but  only  for  the 
expenses  of  construction,  and  the  two  bear  no  fixed  relation  to  one 
another.  In  fact,  expense  of  maintenance  tended  to  be  relatively 
less  as  cost  of  construction  increased.  Hence,  to  a  certain  ex- 
tent, these  errors  offset  one  another.  Furthermore,  the  effect  of 
the  differences  in  the  average  length  of  line  in  different  localities 
is  partially  neutralized  by  the  mileage-charges  on  the  excess  above 
two  kilometers  from  the  central  office.  Nevertheless,  the  adminis- 
tration was  unquestionably  correct  in  its  main  contention  that  the 
cost  of  service  is  greater  in  the  large  exchange  systems. 

The  administration  was  also  easily  able  to  show  that  the  use 
of  the  telephone  varied  greatly  in  the  different  localities.  The 
average  number  of  annual  conversations  per  subscriber's  line  in 
the  entire  imperial  telephone  exchange  system  was  2,750.  This 
was  also  approximately  the  number  in  the  two  largest  telephone 
exchange  systems,  those  in  Berlin  and  Hamburg.  In  some  other 
large  cities,  however,  as  well  as  in  some  smaller  ones,  the  average 
was  twice  as  high  as  this.  On  the  other  hand,  in  many  other  places 
it  was  much  smaller.1 

Concerning  the  second  of  its  main  contentions,  the  administra- 
tion showed  that  the  expense  of  introducing  metallic  circuits  in 
the  seven  largest  exchange  systems  of  the  empire  would  amount 
to  15%  of  their  original  cost  of  construction.2  It  declared  it  to  be 
reasonable  that  those  who  were  to  benefit  by  this  alteration  should 
bear  the  burden.  There  was  not  much  reply  that  the  big  commer- 
cial interests  could  make  to  these  arguments.  They  could  only 
lamely  protest  that  the  exchange  service  was  of  such  general  bene- 
fit to  the  community  that  the  expense  of  its  improvement  should 
be  borne  by  the  general  body  of  taxpayers.  But  the  analogy  of  a 
telephone  exchange  to  a  public  park  system  did  not  make  a  deep 
impression  on  the  representatives  of  the  small  cities  and  rural  dis- 
1  A.  P.  T.,  1899,  p.  286.  *  XIV.  Kom.  1899,  App.  i. 


150  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tricts  in  the  committee.  Indeed,  there  was  no  occasion  for  the 
telephone  administration  to  go  to  the  Reichstag  at  all  unless  it 
intended  to  raise  the  rates  somewhere. 

The  real  contest  in  the  committee  took  place  between  the  coun- 
try representatives,  who  desired  to  get  the  lowest  rates  possible 
while  they  had  such  a  good  opportunity,  and  the  telephone 
administration,  which  sought  to  prevent  any  changes  in  its  pro- 
posals that  would  reduce  the  total  amount  of  its  anticipated 
revenue.  The  representatives  of  the  large  cities  were  reduced  to 
the  defensive,  where  they  bent  all  their  energies  to  the  task  of 
keeping  the  inevitable  increase  of  the  rates  in  large  exchange- 
systems  as  low  as  possible.  Thus,  when  the  representatives  of  the 
rural  districts  attempted  to  reduce  the  proposed  ground  rates  to 
40  marks  in  exchange  systems  with  not  more  than  100  subscribers 
and  to  50  marks  in  those  with  from  100  to  500,  the  representatives 
of  the  large  cities  voted  in  favor  of  retaining  the  proposal  of  the 
administration.  They  had  no  desire  to  permit  the  creation  of  a 
deficit  which  would  require  a  further  increase  of  the  charges  in 
large  cities.1 

The  committee  took  issue  with  the  telephone  administration 
most  particularly  over  its  scheme  of  measured-service  rates.  For 
some  reason  the  flat  rate  appeals  to  the  ordinary  business  man 
in  a  way  that  the  message  rate  never  has  been  able  to  do.  Prob- 
ably it  is  because  the  flat  rate,  even  if  not  altogether  equitable,  is 
absolutely  certain;  whereas  under  a  system  of  message  rates  the 
size  of  a  telephone  bill  cannot  be  accurately  predicted  at  the  be- 
ginning of  the  year.  And  where  the  pocket-book  is  concerned,  the 
ordinary  business  man  much  prefers  to  face  a  certain  evil  than  to 
fly  to  others  that  are  unknown.  In  the  committee  it  was  argued 
that  there  was  no  practicable  way  of  putting  message  rates  into 
force.  The  administration  replied  that  it  could  not  postpone  such 
an  urgent  reform  until  a  register  of  talks  should  be  invented.  It 
had  experimented  with  a  hundred  mechanical  and  electrical 
devices,  but  none  was  a  success.  It  did  not  know  when  such  a 
machine  would  be  invented  and  did  not  propose  to  wait  for  one 
for  an  indefinite  period.  The  method  of  estimating  the  number  of 
1  XIV.  Kom.  1899,  minutes  of  sitting. 


THE  GERMAN  FLAT  RATES  151 

effective  annual  calls  by  occasional  manual  registrations  of  the 
talks  during  one  day  was  accurate  enough  for  practical  purposes. 
The  committee  did  not  deny  this,  but  nevertheless  insisted  on 
retaining  the  flat  rates,  although  in  a  modified  form.  The  ultimate 
result  of  the  proceedings  was  a  compromise. 

A  schedule  of  flat  rates,  graduated  according  to  the  size  of  the 
different  exchange  systems,  was  agreed  upon.  The  amount  of 
differentiation  between  large  and  small  exchange  systems  was  made 
as  great  as  the  opposition  of  the  representatives  of  the  large  systems 
would  permit.  It  was  estimated  that  this  schedule  would  cause  an 
increase  of  rates  in  eighteen  places,  no  change  in  nineteen,  and  a 
reduction  in  the  other  679  of  the  716  places  which  had  exchange 
service  at  that  moment.  In  two  thirds  of  all  the  exchange  systems 
in  the  imperial  telephone  area  the  flat  rate  was  cut  almost  in  two. 
At  the  same  time  the  general  level  of  the  flat  rates  was  maintained 
at  a  point  satisfactory  to  the  administration.  The  large  number 
of  subscribers  in  the  few  places  subjected  to  an  increase  made  this 
possible  without  causing  the  increase  per  subscriber  to  be  exces- 
sively heavy.  Moreover,  with  a  view  to  the  more  equitable  dis- 
tribution of  the  cost  of  exchange  service  between  large  and  small 
users  in  the  same  area,  the  proposed  scheme  of  message-rates  was 
retained  in  a  modified  form  as  an  alternative  of  which  telephone 
subscribers  might  avail  themselves  if  they  pleased.  The  principle 
of  the  determination  of  the  message-rate  for  all  the  subscribers 
to  a  given  exchange  system  according  to  the  average  number  of 
talks  per  line  in  that  system  was  abandoned.  The  committee's 
plan  provided  that  the  variable  portion  of  the  charge  was  to  be 
reckoned  for  each  measured-service  subscriber  on  the  basis  of  his 
actual  number  of  talks.  The  rate,  instead  of  being  degressive  as 
in  the  administration's  original  proposal,  however,  was  raised  to 
a  uniform  charge  of  5  pfennigs  on  all  messages  with  a  minimum 
of  400  messages  a  year.  This  was  the  price  which  the  committee 
paid  in  order  to  secure  the  administration's  consent  to  the  alter- 
ation of  the  basis  of  charge. 

The  effect  was  to  give  an  entirely  different  turn  to  the  reform 
from  that  intended  by  the  telephone  administration.  The  adop- 
tion of  both  bases  of  charge,  the  unlimited  and  the  limited  ser- 


152 


PUBLIC  OWNERSHIP  OF  TELEPHONES 


vice,  in  the  new  schedule  of  rates  made  possible  a  reduction  for 
small  users  everywhere  and  for  large  users  in  small  places.  Thus, 
the  proposed  reform  of  1899,  as  amended  in  the  committee  of  the 
Reichstag,  contemplated  a  differentiation  of  rates,  both  as  be- 
tween localities  and  as  between  individuals.  The  actual  schedules 


were  as  lonows  :  * 

• 

* 

No.  of  such 

Size  of  exchange 

exchange 

Ffo/  ra/e  (proposed 

system 

systems  in 

by  committee) 

Feb.  1899 

Up  to  50  subscribers 

473 

Mks.  80  (OD 

51-100 

97 

100 

101-200 

61 

120 

201-500 

44 

140 

501-1000 

18 

I5° 

IOOI-5OOO 

18 

160 

-.\      t:"^ 

r-     -       vj 

•  r  r- 

5001-20000       " 

4 

170 

Over  20000 

•*                -1 

I 

1  80 

716 

Ground  and 

rate  (revised 

by  committee) 


Mks.  60  +  5  pf. 
per  message 

Mks.  75  +  5pf- 
per  message 

Mks.  90+5  pf. 
per  message 
Mks.  100+5  pf. 
per  message 


The  provision  among  the  original  proposals  of  the  telephone 
authorities  that  they  should  be  authorized  to  readjust  the  charges 
for  stations  connected  with  private  branch  exchanges  and  for 
other  secondary  services  was  accepted  by  the  committee.2  The 

1  XIV.  Kom.  1899,  App.  9. 

2  The  telephone  authorities  took  advantage  of  this  provision  to  make  some  impor- 
tant modifications  in  the  charges  for  this  class  of  service.  Any  subscriber  could  have 
additional  stations  attached  to  the  principal  stations  for  his  own  use  for  20  marks  a 
year  each.  Flat-rate  subscribers  could  have  additional  stations  connected  with  their 
lines  for  the  use  of  other  persons  for  30  marks  a  year  each.These  private  branch  lines 
could  be  installed  either  by  the  telephone  authorities  or  by  other  competent  persons. 
The  purpose  of  these  reductions  in  the  charges  for  private  branch  exchanges  was  to 
encourage  the  use  of  that  class  of  service,  especially  in  the  urban  residential  districts. 
This  class  of  service  was  very  attractive  to  small  users  everywhere,  who  were  in  a  po- 
sition to  employ  it  in  place  of  direct  connections  under  the  measured-service  schedule. 
These  private  branch  exchange  rates  went  into  effect  at  the  same  time  as  the  others. 
Tarifs  til.  II,  pp.  27-30. 


THE  GERMAN  FLAT  RATES  153 

committee,  however,  stipulated  that  the  charge  for  urgent  mes- 
sages should  be  three  times  the  ordinary  rates.  In  some  other 
respects  of  comparatively  little  importance,  the  administration's 
proposals  were  approved  without  change.  The  bill  in  this  form 
received  the  sanction  of  the  Reichstag  and  became  law  on  Decem- 
ber 20,  1899. 

The  reform  of  the  telephone  rates  in  the  imperial  telephone  area 
was  imitated  in  Bavaria  and  Wurtemberg.  Indeed,  special*  dele- 
gates of  the  Bavarian  and  Wurtemberg  governments  took  part 
in  the  work  of  the  parliamentary  commission  in  1899.  This  was 
necessary  because  the  proposed  long-distance  rates  would  affect 
the  revenues  of  the  two  South  German  governments.  Besides  this, 
however,  representatives  of  the  Munich  Chamber  of  Commerce 
were  in  attendance  at  all  the  public  sessions  of  the  commission. 
On  their  return  they  reported  to  the  Chamber  on  the  proposed 
imperial  legislation  concerning  local  rates  with  a  view  to  action 
in  Bavaria.  In  accordance  with  this  report  the  Chamber  directed 
a  memorial  to  the  Bavarian  administration  in  which  its  views  were 
set  forth.  The  Chamber  admitted  that  some  action  ought  to  be 
taken  in  order  that  the  use  of  the  telephone  might  be  extended 
among  broader  classes  in  both  city  and  country.  Nevertheless, 
although  it  recognized  the  justice  of  the  underlying  principles  of 
the  contemplated  reform,  it  was  forced  to  see  in  the  actual  mea- 
sure proposed  an  obstacle  to  the  further  development  of  the  ser- 
vice, especially  among  the  smaller  business  circles  in  the  large 
cities.  It  decidedly  opposed  the  principle  of  message  rates,  and 
declared  that  in  no  case  should  the  cost  of  telephone  service 
exceed  150  marks  a  year.1 

The  telephone  administration  in  Bavaria  under  existing  legis- 
lation was  not  bound  to  submit  its  rates  to  the  approval  of  the 
local  Landtag,  and  consequently  in  default  of  fresh  legislation 
there  was  no  means  of  preventing  it  from  making  such  changes 
as  it  pleased.  It  chose,  however,  to  adopt  that  policy  which  should 
be  most  likely  to  be  sanctioned  by  public  opinion,  and  accordingly 
awaited  the  action  of  the  German  Reichstag  on  the  imperial  pro- 
posals. After  the  passage  of  the  act  of  December  20,  1899,  it 
1  HGK  Oberbayern,  1899,  pp.  87-89. 


154  PUBLIC  OWNERSHIP  OF  TELEPHONES 

did  not  long  delay  the  decree  of  a  similar  schedule  of  rates  in 
Bavaria.1 

Under  the  Bavarian  schedule  the  message  rates  were  the  same 
as  those  established  in  the  imperial  telephone  area,  except  that 
the  absence  of  any  exchange  system  as  large  as  that  of  Berlin 
made  it  possible  to  omit  from  the  Bavarian  schedule  the  maximum 
rate  provided  for  the  imperial  capital.  A  more  significant  altera- 
tion was  made  in  the  schedule  of  flat  rates.  The  minimum  Bava- 
rian rate  was  fixed  at  the  same  level  as  in  the  imperial  telephone 
area,  but  the  maximum  was  not  raised  above  the  rate  which  had 
been  in  force  before  the  reform.  Thus,  subscribers  in  Munich, 
instead  of  being  forced  to  pay  30  marks  more  a  year  than  before, 
as  in  Berlin,  or  20  marks  more,  as  in  exchange  systems  of  corre- 
sponding size  in  the  imperial  telephone  area,  continued  to  pay  the 
original  flat  rate.  The  lower  stages  in  the  flat-rate  schedule  were 
consequently  arranged  on  a  different  scale  from  that  introduced 
in  the  imperial  telephone  area,  so  that  in  all  exchanges  in  Bavaria 
with  more  than  200  subscribers  the  reduction  was  somewhat 
greater  than  in  corresponding  exchange  systems  in  the  imperial 
telephone  area.  Thus  the  Bavarian  authorities  succeeded  in  re- 
forming the  flat  rates  without  introducing  an  actual  increase  any- 
where. 

In  Wurtemberg  the  agitation  which  culminated  elsewhere  in 
the  reform  of  1899  had  less  reason  for  being.  The  flat  rate  since 
January  i,  1891,  had  been  only  two  thirds  as  high  as  in  the  other 
parts  of  Germany,  and  the  government  had  always  made  special 
effort  to  foster  the  use  of  the  telephone  by  the  rural  population. 
Public  call  offices  were  established  freely  in  connection  with  the 
urban  exchange  systems,  both  within  the  urban  limits  and  in  the 
surrounding  villages.  The  toll  rate  on  all  long-distance  communica- 
tions in  Wurtemberg  was  reduced  in  1892  from  60  to  50  pfennigs.2 
In  1897  it  was  further  reduced  to  25  pfennigs  for  all  distances  less 
than  50  kilometers.3  At  the  same  time,  the  suburban  and  local  call- 
office  rates  were  reduced  from  20  to  10  pfennigs.  These  suburban 

1  Der  Tdephongebuhrentarif  vom  27  Feb.,  1900.  Cf .  Kgl.  Gesetzes-  und  Verordnungs- 
Blatt  of  the  same  date. 
*  Verwaltungsbericht  (Wurttemberg),  1892-93,  p.  79.         •  Ibid.,  1897-98,  p.  96. 


THE  GERMAN  FLAT  RATES  155 

and  inter-urban  rates  were  the  cheapest  in  Germany.  Moreover  in 
Wurtemberg  a  great  part  of  the  telephone  traffic,  outside  of  the 
local  traffic  in  Stuttgart,  is  of  the  sort  to  profit  by  those  reduced 
rates.  In  1899  more  than  half  of  the  purely  local  talks  in  the  king- 
dom took  place  in  the  Stuttgart  exchange  area.  Twenty-five  per 
cent  of  all  the  telephone  talks  in  the  kingdom  were  toll  messages. 
The  more  pressing  needs  of  the  Wurtemberg  population  for  tele- 
phone service  were  indisputably  well  met. 

Nevertheless  the  business  men  in  the  smaller  places  who  did 
desire  a  local  exchange  service  felt  it  to  be  unjust  that  they  were 
compelled  to  pay  the  same  flat  rate  as  those  in  Stuttgart.  The 
latter  unquestionably  received  a  far  more  valuable  exchange  ser- 
vice than  could  possibly  be  offered  in  the  country  towns  and  vil- 
lages. The  question  of  a  reduction  of  the  rates  in  country  exchanges 
was  first  broached  in  the  Landtag  in  1897,  but  did  not  arouse  much 
interest  and  no  action  was  taken  at  that  time.  In  1899,  however, 
the  reform  of  the  rates  in  the  imperial  service  made  it  impossible 
to  avoid  giving  the  question  more  serious  consideration  in  Wur- 
temberg. Petitions  urging  a  similar  differentiation  of  rates  in 
favor  of  the  smaller  places  were  sent  in  to  the  Landtag  by  local 
business  men  in  the  rural  cities.  In  response  to  these  petitions  the 
minister  in  charge  of  the  telephone  service  declared  that  a  further 
reduction  of  the  rates  was  unnecessary  in  Wurtemberg.1  However, 
after  the  reform  had  been  adopted  in  the  empire,  he  changed  his 
mind  and  drew  up  a  new  schedule  of  rates  to  go  into  effect  at  the 
same  time  as  the  new  rate  in  the  rest  of  Germany.2 

The  Wurtemberg  reform  was  of  a  less  radical  nature  than  the 
others.  The  flat  rate  was  reduced  in  all  exchanges  with  not  more 
than  100  subscribers  to  80  marks.  Elsewhere  it  remained  as  before 
at  100  marks.  The  rate  for  branch  stations  was  reduced  from  50 
marks  to  30  marks,  and  for  additional  stations  on  the  same  prem- 
ises as  the  terminal  of  a  direct  exchange  line,  from  50  marks  to 
25  marks.  Finally,  for  the  telephone  stations  used  exclusively  for 
suburban  and  inter-urban  connections,  the  rate  was  reduced  from 
TOO  marks  to  75  marks  in  Stuttgart,  and  to  60  marks  elsewhere. 

1  In  the  sitting  of  the  Landtag  of  June  6,  1899. 

8  Verwaltungsbericht  (Wurttemberg),  1899,  Tabelle  30. 


156  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  latter  reduction  was  the  most  important  part  of  the  reform 
in  Wurtemberg,  since  it  brought  the  greatest  saving  to  that  part 
of  the  community  which  was  most  in  need  of  cheaper  rates,  and 
in  that  branch  of  the  service  in  which  lower  rates  were  most  justi- 
fiable. There  was  no  introduction  of  message  rates  and  no  attempt 
at  a  fine  graduation  of  the  flat  rates.  The  principle  of  flat  rates 
was  strictly  adhered  to  even  for  long-distance  service.  The  long- 
distance toll  rates  for  communication  with  the  rest  of  Germany 
were  regulated,  of  course,  by  the  imperial  act  of  1899.  The  domes- 
tic long-distance  rate  was  revised  on  the  same  principle.  The  single 
rate  of  25  pfennigs  was  withdrawn  and  a  schedule  of  three  rates 
of  10,  20  and  50  pfennigs  respectively,  according  to  distance,  was 
substituted.  Thus  the  toll  rates  were  placed  on  a  more  rational 
basis.  Beyond  the  liberal  provision  of  public  call  offices,1  no  at- 
tempt was  made  to  individualize  the  exchange  rates. 

1  The  first  automatic  public  call  office  was  established  in  Stuttgart  in  1899. 
Others  were  established  in  the  succeeding  years. 


CHAPTER  X 

THE    RATE-POLICY  OF  THE   GERMAN  TELEPHONE  ADMINISTRATION  I 
THE   INTRODUCTION   OF  MEASURED   SERVICE 

THE  new  rates  went  into  effect  at  the  beginning  of  the  next 
financial  year,  on  April  i,  1900.  During  the  ensuing  years  the 
spread  of  the  use  of  the  telephone,  both  among  smaller  users  and 
in  smaller  localities,  was  marked.1  On  March  31,  1906,  there  were 
510,831  telephones  in  use  in  the  imperial  telephone  area.  Of  these 
218,470  were  connected  directly  with  a  public  exchange  under  a 
flat-rate  contract,  132,490  were  connected  with  private  branch 
exchanges,  and  151,967  were  connected  directly  with  a  public 
exchange  under  a  message-rate  contract.  Of  the  others,  3,121  were 
telephones  used  by  public  officials  without  charge,  and  4,612 
were  public  call  offices  within  the  urban  exchange  areas.  The  total 
number  of  telephones  of  all  kinds  on  March  31,  1900,  the  day 
before  the  revised  rates  went  into  effect,  was  195,078.  Hence,  the 
absolute  increase  during  the  six  years  had  been  about  equally 
divided  between  the  measured  service  and  the  unlimited  service. 
But  if  the  stations  connected  with  private  branch  exchanges  be 
deducted  from  those  classed  under  the  head  of  unlimited  service, 
the  increase  of  measured-service  connections  will  be  seen  to  have 
been  much  greater.  During  the  first  year  after  the  new  rates  went 
into  effect,  the  total  increase  in  the  number  of  direct  exchange 
connections  was  34,767.  The  number  of  such  lines  operated  under 
the  message-rate  schedule  at  the  end  of  the  year  was  45,131. 
Therefore  assuming  that  the  entire  increase  for  the  year  took  place 
under  the  message-rate  schedule,  there  must  have  been  over  10,000 
telephone  subscribers,  or  about  one  in  sixteen,  who  changed  during 
the  course  of  the  year  from  an  unlimited  to  a  measured  service. 

1  Figures  are  taken  from  the  RPT  Ergebnisse,  1896-1900,  1901-05;  and  from  the 
A.  P.  T.,  1902,  pp.  12-21 :  "Die  Wirkungen  der  Fernsprechgebiihrenordnung."  The 
annual  statistical  reports  of  the  three  German  postal  and  telegraphic  administrationa 
have  also  been  used. 


158  PUBLIC  OWNERSHIP  OF  TELEPHONES 

At  the  end  of  the  first  year,  under  the  new  rates,  more  than  one 
subscriber  in  five  was  a  message-rate  subscriber.  Half  a  dozen 
years  later  the  proportion  was  two  in  five.1 

In  the  Berlin  postal  district  (which  includes  the  metropolitan 
and  suburban  area  known  as  Greater  Berlin)  the  increase  of  tele- 
phone connections  was  divided  between  the  direct  and  the  private 
branch  exchange  service  as  follows:  — 

Mar.  ji,  igoi  Mar.  31,  igo$  Increase 

Direct  connections                            39>949              63,107  58% 

Brahch-exchange  connections           13,104              35,531  171% 

53,053             "98,638  86% 
( Berlin  city                 36,098              49,01? 

connectionsj       „    suburbs  3>8$I  I4}09O 

Branch          C  Berlin  city  12,186  28,169  131% 

exchange      J 

connections  [       "    suburbs  918  7,362  702% 

The  effect  of  the  modified  private  branch  exchange  rates  was 
therefore  greatly  to  stimulate  the  increased  use  of  the  telephone 
by  residential  subscribers.  When  it  is  further  considered  that  the 
bulk  of  the  increase  of  direct  connections  was  in  the  form  of  the 
measured  service,  the  impulse  given  to  the  extension  of  telephone 
service  to  others  besides  the  commercial  classes  by  the  reform  of 
1899  becomes  manifest.  The  rate  of  increase  in  the  total  number 
of  telephones  in  use  during  the  period  1900-1905  was  no  greater 
than  that  during  the  two  previous  quinquennial  periods,  but  the 
distribution  of  the  increase  during  the  later  period  between  the 
different  classes  of  service  affords  abundant  evidence  of  the  utility 
of  the  reform  of  1899  in  adjusting  the  character  and  the  price  of 
service  more  accurately  to  the  various  needs  of  different  indi- 
viduals. 

The  success  of  the  reform  of  1899  was  equally  great  as  regards 

1  During  the  first  seven  years  under  the  revised  rates,  *.  e.,  until  March  31, 
1907,  the  absolute  increaseof  the  flat-rate  subscribers  was  from  166,134  to  238,812; 
that  of  the  message-rate  subscribers  from  nothing  to  177,660.  The  increase  in  the 
number  of  stations  connected  with  private  branch  exchanges  was  from  28,764  to 
170,795. 


THE  INTRODUCTION  OF  MEASURED   SERVICE       159 

the  readjustment  of  the  price  of  the  service  to  the  conditions  in 
different  localities.  The  total  number  of  exchanges  in  the  imperial 
telephone  area  increased  between  March  31,  1900,  and  March  31, 
1907,  from  1,220  to  4,402.  A  year  earlier  there  were  4,062  telephone 
exchanges  in  operation.  Of  these  1,059,  or  more  than  one  fourth 
of  the  whole  number,  contained  less  than  five  subscribers'  lines. 
These  were  all,  of  course,  in  rural  districts  and  had  come  into  ex- 
istence almost  without  exception,  together  with  a  great  many 
others  not  much  larger,  since  the  reformed  rates  went  into  effect. 
The  average  number  of  telephones  per  exchange  fell  during  the 
quinquennial  period  1901-05  from  160  to  115.  This  fall  took  place 
despite  the  continued  large  increase  in  the  large  cities.  In  the 
rural  districts,  besides  the  increase  in  the  number  of  small  ex- 
changes, the  number  of  public  call  offices  increased  during  the 
same  quinquennial  period  from  12,147  to  17,335.  That  meant  the  ./ 
inclusion  of  over  5,000  more  isolated  villages  within  the  general 
telephone  system  of  the  land. 

This,  however,  was  simply  the  continuation  of  a  policy  already 
initiated  at  the  time  the  reform  of  1899  was  first  discussed.  Dur- 
ing the  years  1898-99,  Podbielski  had  established  more  than  11,000 
public  call  offices  in  rural  villages  in  order  to  bring  them  into  com- 
munication with  the  nearest  important  exchange  system.1  The 
establishment  of  small  rural  exchanges  had  also  been  well  begun 
before  the  end  of  the  era  of  the  single  flat  rate.  During  the  quin- 
quennial period,  1896-1900,  four  years  of  which  elapsed  before  the 
reform  went  into  effect,  the  number  of  exchanges  in  places  with 
2,000-5,000  inhabitants  increased  tenfold,  and  the  number  in 
places  with  less  than  2,000  inhabitants  increased  from  27  to  897. 
The  average  number  of  stations  connected  with  the  exchanges 
in  places  with  less  than  2,000  inhabitants  decreased  from  21  on 
March  31,  1896,  to  6  on  the  same  day  five  years  later.  In  these 
small  exchanges,  however,  the  local  exchange  service  was  of  trivial 
importance  in  comparison  with  the  long-distance  service  to  the 
neighboring  city. 

A  more  vigorous  policy  of  establishing  public  call  offices  was 
also  inaugurated  before  the  end  of  the  era  of  the  single  flat  rate 

1  Jung  II,  Appendix. 


160  PUBLIC  OWNERSHIP  OF  TELEPHONES 

in  urban  districts  with  a  view  to  making  the  service  more  accessible 
to  non-subscribers.  During  the  deliberations  of  the  commission 
of  the  Reichstag  in  1899,  the  telegraph  authorities  promised  to 
establish  at  once  100  additional  public  call  offices  in  Berlin  and 
to  display  a  similar  activity  in  other  cities.  By  March  31,  1906, 
there  were  altogether  4,612  such  stations  in  the  municipal  tele- 
phone areas.  When  to  these  are  added  all  the  telephones  with  un- 
limited service  which  were  placed  gratuitously  at  the  disposal  of 
their  patrons  by  the  ubiquitous  small  eating  establishments  and 
tobacco  stores,  which  form  such  a  characteristic  feature  of  German 
urban  life,  it  will  be  seen  that  the  small  and  occasional  users  of 
telephone  service  were  tolerably  well  provided  for  in  the  urban 
districts.  In  the  rural  districts,  where  the  chief  use  of  the  tele- 
phone was  to  establish  communication  with  the  nearest  city,  the 
new  policy  of  establishing  public  call  offices,  combined  with 
the  reform  of  the  rates,  had  brought  an  even  more  noteworthy 
improvement  over  the  conditions  that  existed  a  decade  earlier. 

The  first  reappearance  of  discontent  with  telephone  exchange 
rates  was  in  Wurtemberg.  In  that  state  the  reform  of  1899  was 
received  calmly  enough  by  the  commercial  interests  in  the  capital, 
but  did  not  give  satisfaction  to  the  tradesmen  in  the  rural  districts. 
Their  new  rate,  to  be  sure,  was  as  low  as  any  in  the  empire,  but 
they  wanted  it  lower.  They  still  protested  that  they  were  paying 
much  more  proportionately  to  the  value  of  their  service  than  the 
subscribers  in  Stuttgart.  Agitation  in  the  Landtag  was  renewed.1 
Even  the  Stuttgart  Chamber  of  Commerce  was  of  the  opinion  that 
the  small  places  were  entitled  to  a  larger  reduction.2  The  telephone 
administration  took  the  latter  at  its  word  and  determined  to 
increase  the  extent  of  the  local  differentiation  in  the  exchange  rate. 
In  order  to  do  this  and  avoid  a  deficit,  the  administration  was 
forced  to  raise  the  rate  in  Stuttgart.  This  was  more  than  the  com- 
mercial interests  of  the  capital  had  bargained  for,  and  they  raised 
a  storm  of  protest.3  The  Chamber  of  Commerce  conceded  that  the 
administration  was  justified  in  securing  an  increase  of  revenue 
somewhere  in  order  to  compensate  it  for  the  anticipated  loss  in  the 

1  See  esp.  debate  in  Landtag,  sitting  of  June  30,  1903. 

*  HGK  Stuttgart,  1902,  p.  232.  '  Ibid.,  1904,  pp.  193-202. 


THE  INTRODUCTION  OF  MEASURED  SERVICE       161 

small  places,  but  contended  that  the  proposed  reform  would  give 
it  more  than  was  necessary.  The  administration's  proposals  for 
the  revision  of  the  schedule  of  exchange  rates  were  made  in  the 
summer  of  1904.  They  were  discussed  by  the  Beirat  der  Verkehrs- 
anstalten  at  its  session  of  July  25,  and  approved  with  the  quali- 
fication that  the  new  minimum  rate  be  extended  to  all  exchanges 
with  not  more  than  fifty  subscribers  instead  of  only  to  those  with 
not  more  than  twenty,  as  provided  by  the  original  proposal.  /The 
telephone  administration  accordingly  adhered  to  its  plan,  as  thus 
amended,  and  put  it  into  effect  on  April  i,  IQO5.1  The  new  sched- 
ule was  as  follows:  — 

Flat  Rates  (up  to  3  kilometers  from  the  exchange) 2 

In  exchanges  with  not  more  than  —  M ks. 
50  subscribers  60 

51-100       "  80 

101-1000   "  100 

over  looo  "  120 
The  same  in  case  more  than  5000 

messages  are  sent  in  a  year  150 

The  effect  of  the  reform  was  a  reduction  of  20%  in  the  rates  of 
the  small  exchanges,  and  an  increase  at  a  like  per  cent  in  Stuttgart. 
For  all  subscribers  in  Stuttgart,  however,  who  used  over  5,000 
talks  a  year  the  increase  was  at  the  rate  of  50%.  The  maximum 
increase  applied  on  the  basis  of  the  figures  of  1902  to  800  of  the 
6,000  subscribers  in  Stuttgart.  On  the  same  basis  the  reduction 
as  proposed  by  the  telephone  administration  would  have  affected 
283  exchange  systems,  that  is,  more  than  the  total  number  in  the 
entire  kingdom  at  the  beginning  of  the  same  year.  As  actually 
carried  into  effect,  the  reform  affected  a  great  many  more  than 
that.  At  the  same  time,  an  innovation  was  made  with  a  view  to 
bringing  about  a  closer  accord  between  the  rates  and  the  needs  of 
different  users  in  the  same  locality.  It  was  provided  that  any 
subscriber  might  have  an  automatic  pay  station  installed  on  his 
premises  instead  of  the  ordinary  instrument  at  the  flat  rate. 

1  Amtsblatt  der  KgL  Wiirtl.  Verkehrsanstalten,  Nov.  22,  1904. 

2  Extra  line  charged  for  at  rate  of  40  mks.  per  kilometer  per  annum,  to  be  reduced 
to  20  mks.  after  10  years. 


162  PUBLIC  OWNERSHIP  OF  TELEPHONES 

This  automatic  station  could  be  used  like  any  public  call  office 
and  at  the  same  rates.  The  subscriber  was  required  to  guarantee 
that  the  receipts  should  not  be  less  than  the  flat  rate  in  force 
in  the  same  locality.  Under  the  conditions  of  urban  and  rural  life 
in  Wurtemberg  this  message-rate  service  is  capable  of  playing  a 
part  in  extending  the  use  of  the  telephone  among  small  trades- 
people and  householders  like  that  of  the  party-line  in  America. 
It  is  the  logical  consummation  of  the  public  pay  station  policy  of 
Wurtemberg  administration. 

These  rates  will  probably  satisfy  the  needs  of  telephone  users 
in  Wurtemberg  for  some  time  to  come.  Nevertheless,  the  mainte- 
nance of  flat  rates  in  each  locality  is  bound  sooner  or  later  to  cause 
dissatisfaction.  The  same  motives  which  led  to  the  discrimination 
in  the  rate  schedule  of  1905  against  large  users  in  Stuttgart  must 
ultimately  lead  to  the  introduction  of  a  schedule  which  will  apply 
everywhere  and  which  will  be  adjusted  more  accurately  to  the 
variations  in  individual  needs.  Doubtless  the  modest  require- 
ments of  the  bulk  of  the  Wurtemberg  subscribers  make  the  flat 
rate  at  present  a  fairly  reasonable  basis  of  charge.  Yet  the  inevit- 
able tendency  of  flat  rates  to  cause  the  lines  to  be  overloaded  and 
their  failure  to  bring  to  the  administration  an  increase  of  receipts 
in  proportion  to  the  increased  use  of  the  lines  may  easily  cause  the 
early  substitution  of  a  system  of  rates  based  on  a  more  accurately 
measured  service. 

In  the  other  parts  of  the  empire,  these  defects  in  the  principle 
of  flat  rates  were  not  long  in  producing  in  certain  circles  a  new 
spirit  of  discontent  with  the  telephone  exchange  rates  introduced 
in  1899.  Thus  in  Bavaria,  the  Chamber  of  Commerce  at  Munich, 
in  its  first  annual  report  after  the  reform  went  into  effect,  recog- 
nizing that  the  local  commercial  interests  had  been  fortunate  to 
escape  an  increase  of  rates,  declined  to  indorse  any  of  the  com- 
plaints in  regard  to  their  height  sent  in  by  local  business  men.1 
But  among  these  complaints,  for  which  the  Chamber  assumed  no 
responsibility,  was  one  from  the  local  gild  of  glass  workers.  This 
gild  declared  that  the  reformed  schedule  had  failed  to  do  adequate 
justice  to  the  small  handicraftsmen,  whatever  the  big  business 
1  HGK  Oberbayern,  1900,  pp.  179-183. 


THE  INTRODUCTION  OF  MEASURED  SERVICE       163 

men  might  think  of  it.  The  next  year  the  same  complaint  was 
made  by  the  local  gild  of  blacksmiths  and  wheelwrights.1  Again 
it  was  printed  along  with  a  few  complaints  of  bigger  business  men, 
who  still  failed  to  read  the  signs  of  the  time,  without  indorsement 
by  the  Chamber  itself.2  In  general  the  large  users  now  realized  that 
no  reduction  in  local  rates  could  be  made  for  the  benefit  of  the 
small  users  without  the  abolition  of  the  flat  rates,  and  that  would 
mean  the  loss  of  the  advantages  they  had  secured  under  the  reform 
of  1899  by  the  introduction  of  the  graduated  schedule  of  flat  rates. 

In  the  imperial  telephone  service,  also,  the  reform  of  1899  failed 
to  give  permanent  satisfaction.  Temporarily,  to  be  sure,  the  com- 
promise of  that  year  was  accepted  by  all  parties  as  a  step  towards 
a  more  rational  basis  of  rates,  with  which  it  would  be  unseemly  to 
quarrel.  But  as  time  passed,  the  smaller  users  generally,  and  in 
particular  those  in  the  rural  districts,  began  to  feel  that  they  were 
entitled  to  more  favorable  treatment.  The  same  methods  of  agi- 
tation were  employed  as  before,  and  culminated  in  a  resolution 
passed  by  two  consecutive  sessions  of  the  Reichstag.3  This  reso- 
lution requested  the  Chancellor  uto  undertake  a  thorough  refor- 
mation of  the  telephone  rates  in  the  interest  of  the  rural  popula- 
tion, with  a  view  to  the  fairer  distribution  of  the  burden  of  sup- 
porting the  service  between  urban  and  rural  subscribers." 

The  desire  on  the  part  of  a  portion  of  the  telephone  users  to 
secure  a  reformation  of  the  reform  of  1899  was  shared  by  the  tele- 
phone administration  itself.  The  principle  of  measured  service 
rates  which  the  administration  had  intended  to  make  the  basis  of 
that  reform  was  seriously  impaired  by  the  retention  of  the  flat- 
rate  schedule.  In  fact,  after  1899,  as  before,  the  flat-rate  service 
really  characterized  the  German  telephone  system.  To  be  sure, 
the  method  adopted  in  1899  of  graduating  exchange  rates  accord- 
ing to  the  size  of  the  exchange  system  secured  to  the  telephone 
authorities  one  advantage.  As  the  size  of  the  exchange  systems 
increased,  the  level  of  the  rates  would  rise  automatically.  Hence 
they  could  afford  to  regard  the  unprecedented  expansion  of  the 

1  HGK  Oberbayern,  1901,  p.  225.  *  Ibid.,  1901,  p.  301. 

•  Stenogr.  Berichte  des  Reichslages,  reports  of  sittings  of  March  10, 1906,  and  May 
3,  1907.  Cf.  Nr.  360  der  Drucksachen,  1907. 


164  PUBLIC  OWNERSHIP  OF  TELEPHONES 

exchange  service  with  equanimity.  Indeed  this  tendency  probably 
worked  more  to  their  advantage  than  they  had  anticipated,  for 
with  the  transformation  to  metallic  circuits  and  the  extension  of 
underground  construction  the  increase  of  the  number  of  exchange 
subscribers  ought  thereafter  to  have  brought  a  decrease  in  the 
average  capitalization  of  the  exchange  system  per  subscriber.  At 
the  same  time,  the  maintenance  charges  ought  to  have  been  mate- 
rially reduced.  But  if  the  reform  of  1899  had  been  actually  carried 
out  as  originally  planned  by  the  telephone  administration,  the 
tendency  towards  an  automatic  increase  of  receipts  would  have 
been  still  greater.  For  under  a  system  of  flat  rates  the  price  of  the 
service  does  not  increase  with  the  quantity.  Hence  the  subscriber 
who  greatly  overloads  his  line  not  only  encumbers  the  working 
of  the  line,  but  deprives  the  administration  of  its  just  recompense 
for  the  excessive  service.  Thus  a  number  of  subscribers,  mostly 
bankers,  department  stores,  expressmen,  and  restaurant  and  cigar 
storekeepers,  who  place  their  instruments  at  the  disposal  of  their 
patrons,  sent  over  50,000  messages  a  year.  In  the  year  1906  a  flat- 
rate  subscriber  even  carried  on  over  one  telephone  line  more  than 
one  hundred  thousand  local  talks,  or  an  average  of  over  300  on 
each  working  day  of  the  year.1  The  original  proposal  of  1899  would 
have  shifted  the  cost  of  these  excessive  talks  to  the  shoulders  of 
the  other  users  in  the  same  exchange  area.  The  telephone  admin- 
istration was  prevented  from  stopping  this  leak  in  its  revenues  by 
the  refusal  of  the  Reichstag  to  adopt  its  scheme  of  rates.  In  1907 
it  welcomed  the  revival  of  agitation  for  reform  because  an  oppor- 
tunity was  thereby  afforded  for  another  attempt  to  reach  the  big 
users. 

The  administration  was  able  to  make  out  a  good  case  in  favor 
of  the  total  abolition  of  flat  rates.2  During  the  first  seven  years 
after  the  reform  of  1899  went  into  operation,  the  number  of  sub- 
scribers had  more  than  doubled.  The  number  of  telephones  in  use 
had  trebled,  but  a  considerable  part  of  the  increase  was  caused 
by  the  extension  of  the  use  of  additional  stations  on  direct  lines 

1  Denkschrift  des  Reichs-Postamts  wegen  Aenderungen  der  Ferns  prechgebuhrenord- 
nung.  Berlin,  Dec.,  1907,  p.  a. 

2  Cf.  Denkschrift,  passim. 


THE  INTRODUCTION  OF  MEASURED  SERVICE        165 

and  of  private  branch  exchanges.  Yet  the  number  of  message-rate 
connections  had  increased  much  more  rapidly  than  the  number 
at  flat  rates.  At  the  end  of  the  financial  year  1906  (March  31, 1907) 
the  message-rate  connections  formed  42.7%  of  the  whole.  The 
former  were  used  on  the  average  639  times  a  year,  whereas  the 
flat-rate  connections  on  the  average  3,117  times  a  year.  Especially 
in  the  large  cities  the  flat-rate  lines  were  regularly  overloaded. 
In  Berlin  the  average  number  of  calls  per  flat-rate  connection  per 
annum  was  4,702  and  in  Hamburg  was  5,505,  whereas  the  number 
of  calls  on  the  message-rate  connections  was  on  the  average  only 
629  and  612  respectively.  Moreover,  the  average  number  of 
annual  calls  on  flat-rate  connections  was  rising  steadily  from  year 
to  year. 

The  effect  was  to  produce  an  enormous  discrepancy  between 
the  cost  of  a  single  call  to  flat-rate  and  to  message-rate  subscribers. 
In  Berlin  the  former  paid  only  3.8  pfennigs,  whereas  the  latter 
paid  21.4  pfennigs.  In  Hamburg  the  discrepancy  was  even  greater, 
and  in  the  other  large  and  medium-sized  cities  it  was  not  much  less. 
In  the  entire  imperial  telephone  service  the  flat-rate  subscriber 
paid  on  the  average  4.5  pfennigs  a  message,  and  the  message-rate 
subscriber  paid  on  the  average  17.3  pfennigs.  In  the  small  places, 
moreover,  both  flat-rate  and  message-rate  subscribers  paid  a 
higher  rate  per  call  than  the  average  for  the  entire  system.  Thus, 
in  exchanges  having  from  51  to  100  subscribers,  the  former  paid 
7.8  pfennigs,  the  latter  28.5  pfennigs.  Finally,  in  the  tiny  ex- 
changes with  less  than  five  subscribers,  where  only  flat  rates  were 
available,  the  average  cost  per  local  call  was  25  pfennigs,  or  more 
than  the  suburban  toll  rate  in  the  large  cities.  There  could  be  no 
doubt  that  under  the  existing  schedules  of  rates  a  disproportionate  \/ 
share  of  the  burden  fell  to  the  lot  of  the  small  users,  especially  in 
the  small  places. 

The  administration  was  also  able  to  emphasize  the  evils  of 
overloading  the  lines,  caused  by  the  temptation  to  which  flat-rate 
subscribers  were  exposed  to  send  as  many  messages  as  possible 
from  one  station.  The  result  was  that  in  the  larger  exchanges,  in 
1906,  about  20%  of  all  calls  could  not  be  effected  because  the  lines 
of  the  parties  called  were  busy.  This  overloading  of  lines  hurt  both 


166  PUBLIC  OWNERSHIP  OF  TELEPHONES 

parties.  The  one  who  called  up  was  subjected  to  the  annoyance  of 
being  obliged  to  wait;  the  one  who  was  called,  to  the  risk  of  never 
receiving  important  communications  at  all.  Many  an  impatient 
customer  would  go  elsewhere  rather  than  wait  till  his  tradesman's 
line  was  free.  This,  to  be  sure,  was  not  the  fault  of  the  telephone 
administration,  but  it  considered  itself  justified  in  adopting  a 
scale  of  charges  that  would  not  lead  business  men  into  this  tempta- 
tion. Moreover,  the  elimination  of  ineffectual  calls  would  mean 
greater  economy  in  the  service  at  the  central  office.  Subscribers 
themselves  would  avoid  creating  unnecessary  work  for  the  oper- 
ators if  their  interest  lay,  not  in  sending  as  many  messages  per 
year  as  possible  over  their  lines,  but  in  sending  no  more  than  they 
actually  needed.  From  every  standpoint  the  abolition  of  flat  rates 
and  substitution  of  message  rates  was  calculated  to  promote  the 
more  economical  use  of  the  telephone  system  and  thus  in  the  long 
run  to  reduce  the  expense  of  the  service  to  the  subscriber  himself. 

Furthermore  the  greatest  obstacle  to  the  early  introduction  of 
message-rates  had  been  removed  since  the  reform  of  1899.  It  was 
no  longer  necessary  to  rely  upon  a  manual  record  of  the  number  of 
effective  calls.  Both  in  America  and  in  Germany  reliable  mechani- 
cal devices  had  been  invented  which  would  record  the  number  of 
talks  accurately  and  cheaply.  Thus  there  was  no  obstacle  remain- 
ing to  the  introduction  of  charges  for  telephone  service  based  more 
closely  on  its  utility  to  the  users,  except  the  opposition  of  the  users 
themselves.  The  telephone  administration  proposed,  therefore, 
to  accede  to  the  request  of  the  Reichstag  and  to  undertake  a 
thorough  revision  of  telephone  rates  with  a  view  to  a  more  equit- 
able distribution  of  their  burden. 

With  this  object  it  proposed  to  abolish  flat  rates  altogether  and 
to  introduce  a  revised  schedule  of  measured  service  rates.  The 
ground  rate  was  fixed  on  the  same  basis  as  the  corresponding 
portion  of  the  existing  message-rate  schedule.  The  message  rate, 
however,  was  made  degressive  in  order  to  make  allowance  for  the 
more  economical  utilization  of  exchange-lines  by  the  larger  users. 
Under  such  a  schedule  the  small  and  rural  users  would  receive 
more  favorable  treatment  than  under  the  existing  arrangement ; 
for  the  saving  that  would  result  by  charging  the  large  users  for 


THE  INTRODUCTION  OF  MEASURED  SERVICE      167 

the  full  amount  of  their  service  was  to  be  applied  to  a  reduction 
of  the  charges  for  the  smaller  users  and  in  the  smaller  districts. 
The  telephone  administration  recognized  that  the  general  public 
welfare  would  be  promoted  by  the  utmost  extension  of  the  use 
of  the  telephone  in  the  rural  districts.  Under  the  contemplated 
system  they  would  receive  specially  favorable  treatment.  For 
the  payment  of  the  ground  rate  would  entitle  the  subscriber  to  the 
connection  with  the  exchange  of  a  station  anywhere  within,  five 
kilometers  of  the  central  office  without  an  additional  mileage 
charge.  In  the  existing  state  of  the  industry,  the  expense  of  con- 
structing additional  lines  in  the  rural  districts  was  often  greater 
than  in  the  urban,  because  it  was  not  possible  to  utilize  to  such  a 
large  extent  plant  which  was  already  in  place.  Beyond  these  con- 
cessions the  administration  did  not  propose  to  go  with  respect  to 
discrimination  between  urban  and  rural  subscribers.  Its  chief 
purpose  was  to  adjust  telephone  rates  as  accurately  as  possible 
to  the  actual  usefulness  of  the  service  to  the  subscribers  wherever 
they  might  be  situated.  In  short,  the  essence  of  the  proposed 
reform  of  1908  was  the  individualization  of  rates. 

The  actual  proposal  was  as  follows:  all  flat  rates  should  be 
abolished.  The  ground  rates  of  the  existing  measured  service 
schedule  should  be  reduced  in  each  grade  of  the  scale  by  10  marks, 
and  the  requirement  that  at  least  400  messages  a  year  should  be 
paid  for  at  the  message  rate  be  withdrawn.  With  regard  to  ex- 
change systems  containing  more  than  20,000  subscribers,  a  further 
graduation  should  take  place,  so  that  for  each  50,000  subscribers, 
or  fraction  thereof,  in  excess  of  70,000,  the  ground  rate  should  be 
increased  by  10  marks.  This  increase  was  justified  by  the  increase 
of  the  cost  of  service  which,  according  to  the  memorial  issued  by 
the  telephone  administration,1  would  be  produced  in  such  large 
exchange  systems  by  the  growing  complexity  and  expensiveness 
of  the  technical  arrangements  required  actually  to  effect  all  the 
possible  connections.  At  the  moment  no  exchange  system  con- 
tained as  many  as  70,000  subscribers,  but  the  time  was  not  far 
distant  when  that  number  would  be  reached  in  Berlin.  The  exist- 
ing message  rate  of  5  pfennigs  should  be  retained  for  the  first 

1  Denkschrift,  p.  7. 


l68  PUBLIC  OWNERSHIP  OF  TELEPHONES 

2,000  messages  originating  at  a  subscriber's  station,  for  the  next 
4,000  the  rate  should  be  reduced  to  4.5  pfennigs,  and  for  a  further 
4,000  to  4  pfennigs.  Subscribers  desiring  to  send  more  than  10,000 
messages  in  a  year  should  be  required  to  install  a  second  line.  Thus 
at  the  same  time  the  overloading  of  lines  would  be  prevented  and 
large  users  would  receive  some  consideration  for  their  greater 
patronage  of  the  service. 

The  effect  of  this  reform  would  be  the  reduction  of  the  existing 
ground  rate  in  all  exchange  systems  and  a  reduction  of  the  message 
rates  on  a  part  of  the  service  of  large  users.  Assuming  that  every 
telephone  subscriber  would  make  the  same  use  of  his  line  after 
the  reform  as  before,  regardless  whether  he  had  previously  sub- 
scribed for  an  unlimited  or  a  limited  service,  the  administration 
estimated  that  the  proposed  changes  would  bring  a  real  reduction 
in  the  cost  of  their  telephone  service  to  60.5  %  of  all  subscribers, 
and  an  increase  to  only  the  remaining  39.5  %.  These  latter  were 
flat-rate  subscribers  under  the  existing  system,  and  some  of  them 
would  necessarily  find  the  size  of  their  telephone  bill  enormously 
increased.  The  administration  declared,  however,  that  this  in- 
crease in  reality  would  not  be  so  great  as  might  appear  on  the 
basis  of  their  existing  use  of  the  service.  For  much  telephoning  was 
unnecessary  and  only  took  place  because  it  cost  the  flat-rate  sub- 
scriber no  more  to  use  his  instrument  lavishly  than  to  use  it  spar- 
ingly. Thus,  in  1900,  as  the  result  of  the  introduction  of  the  optional 
limited  service,  so  many  subscribers  chose  to  take  advantage  of  the 
opportunity  afforded  by  the  latter  to  economize  in  the  size  of  their 
telephone  bill  that  the  average  number  of  talks  per  telephone  was 
reduced  for  the  entire  imperial  telephone  system  by  33%.  In  New 
York  the  transition  from  a  flat-rate  to  a  message-rate  service  was 
well  under  way  in  1902,  at  which  time  the  system  was  of  about  the 
same  extent  as  the  Berlin  system  in  1907.  The  effect  in  New  York 
had  been  the  immediate  reduction  of  the  average  number  of  talks 
per  line  to  7.6  per  day.  In  1907  the  average  in  Berlin  was  over 
1 5  a  day  for  flat-rate  subscribers  and  barely  2  a  day  for  message- 
rate  subscribers.  The  administration  estimated  that  the  result  of 
the  abolition  of  flat  rates  would  be  a  reduction  of  the  average  use 
of  a  subscriber's  line  in  Berlin  to  about  7  talks  a  day,  or  in  the  im- 


THE  INTRODUCTION  OF  MEASURED  SERVICE       169 

perial  telephone  service  as  a  whole  by  40%.  In  other  words,  the 
administration  broadly  hinted  that  the  big  users  could  keep  their 
telephone  bills  within  reasonable  limits  under  a  system  of  message 
rates  by  means  of  a  reasonable  economy  in  their  use  of  the  service. 

Besides  the  abuse  of  the  flat-rate  service,  there  was  another 
cause  of  leakage  in  the  revenues  of  the  telephone  administration. 
In  1899,  when  the  schedule  of  long-distance  rates  was  revised,  no 
provision  had  been  made  for  a  graduation  of  rates  for  distances 
in  excess  of  1,000  kilometers.  At  that  time  it  was  not  necessary. 
But  it  was  not  long  before  the  long-distance  traffic  over  greater 
distances  than  were  contemplated  in  1899  attained  considerable 
proportions.  It  was  found  that  the  cost  of  rendering  the  services 
over  the  longer  distances  increased  significantly.  For  one  thing, 
wire  of  greater  thickness  had  to  be  employed  in  order  to  maintain 
a  satisfactory  standard  of  audibility  over  the  longer  distances,  and 
this  alone  was  sufficient  to  cause  a  noteworthy  increase  in  the 
expense  of  establishing  such  service.  The  result  was  that  direct 
long-distance  business  between  the  more  remote  cities  was  being 
carried  on  at  a  loss.  The  administration  accordingly  proposed  to 
graduate  the  entire  schedule  of  long-distance  rates  on  the  basis 
of  stages  of  250  kilometers  each,  and  to  readjust  the  rates  on  that 
basis.  The  effect  would  be  to  confine  the  existing  rate  for  the  stage 
between  500  and  1,000  kilometers  (50  marks)  to  the  stage  between 
500  and  750  kilometers.  The  rate  for  all  distances  in  excess  of 
1,000  kilometers  (2  marks)  would  be  applied  thereafter  to  the  stage 
between  750  and  1,000  kilometers,  and  the  proposed  rate  for 
greater  distances  increased  by  50  pfennigs  for  each  further  stage 
of  250  kilometers.  By  way  of  compensation  for  these  increases 
it  was  proposed  to  create  a  new  stage  for  the  lines  between  100 
and  250  kilometers  in  length.  Within  this  stage,  in  which  would 
fall  many  important  long-distance  connections,  the  administration 
proposed  to  reduce  the  existing  rate  from  one  mark  to  75  pfen- 
nigs. The  rates  for  shorter  distances  were  to  remain  unchanged. 

These  increases  in  the  long-distance  rates  would  apply  to  the 
traffic  with  Bavaria  and  Wurtemberg,  as  well  as  within  those 
parts  of  the  empire  included  in  the  imperial  postal  and  telegraph 
area.  Representatives  of  the  telephone  administrations  of  those 


170  PUBLIC  OWNERSHIP  OF  TELEPHONES 

two  South  German  states  accordingly  took  part  in  the  work  of 
framing  the  new  schedule.  The  Bavarian  administration,  more- 
over, took  advantage  of  the  opportunity  to  reform  also  its  ex- 
change rates.  These,  it  will  be  remembered,  had  been  framed  at 
the  time  of  the  reform  of  1899  with  a  view  to  favoring  the  smaller 
localities  and  users  without  increasing  the  cost  to  the  big  users 
in  Munich.  Hence,  throughout  the  upper  stages  of  the  schedule 
the  flat  rates  were  lower  than  in  exchange  systems  of  correspond- 
ing size  in  the  imperial  service.  The  result  was  that  the  Bavarian 
administration  was  unable  to  make  both  ends  meet.  The  financial 
state  of  its  telephone  business  could  not  be  determined  with  accu- 
racy on  account  of  its  union  with  the  postal  and  telegraph  services, 
but  as  careful  an  examination  of  the  posture  of  affairs  was  made 
as  the  circumstances  would  permit.1  This  examination  showed 
that  the  receipts  from  the  local  exchange  business,  after  payment 
of  the  operating  expenses,  including  the  cost  of  maintenance  and 
renewal  of  worn-out  plant,  and  interest  at  the  rate  of  3.5  %  on 
the  capital  invested  in  exchange  construction,  yielded  a  surplus 
of  100,000  marks  a  year.  If  the  same  rates  had  been  in  force  as  in 
the  imperial  exchange  service  and  the  local  traffic  had  been  never- 
theless the  same,  this  net  surplus  would  have  been  three  times 
as  great. 

But  this  small  surplus  was  more  than  wiped  out  by  the  deficit 
in  the  long-distance  branch  of  the  business.  In  this  service  the 
current  receipts  did  not  even  cover  the  ordinary  operating  ex- 
penses, to  say  nothing  of  interest  and  depreciation.  The  long- 
distance rates  were  the  same  as  in  the  imperial  telephone  service, 
but  in  Bavaria,  as  the  telephone  administration  took  some  pains 
to  point  out,2  industry  was  less  highly  developed  and  the  commer- 
cial activity  less  lively  than  in  the  imperial  telephone  area.  The 
predominantly  agricultural  population  did  not  utilize  the  long- 
distance facilities  so  economically  as  would  have  been  the  case 
with  an  industrial  population.  The  fixed  plant  had  to  lie  idle  a 
greater  portion  of  the  time  in  order  to  be  available  when  it  was 

1  "Neuregelung  der  Telephongebiihren,"  Verkehrsministerialblatt  fiir  das  Kgh. 
Bayern,  1908,  No.  2,  pp.  7-21.   (Jan.  3,  1908.) 

2  Ibid.,  p.  15. 


THE  INTRODUCTION  OF  MEASURED  SERVICE       171 

needed.  Moreover  in  Bavaria  the  duration  of  a  long-distance  talk 
was  five  minutes,  instead  of  three,  as  in  the  imperial  telephone 
service.  Finally,  a  flat-rate  service  was  maintained  for  suburban 
and  inter-urban  communications  which  was  operated  at  a  formi- 
dable loss.  The  kingdom  was  divided  into  eight  administrative 
districts,  throughout  the  entire  extent  of  each  of  which  unlimited 
communication  was  granted  for  a  payment  of  50  marks,  in  addition 
to  the  ordinary  local  exchange  rate.  This  was  analogous  to  a  "sim- 
ilar service  that  had  long  existed  in  the  imperial  territorial  service, 
but  on  a  far  less  extensive  scale.  In  Bavaria  this  service  had  been 
limited  in  1902  to  1,000  messages  at  the  flat  rate,  and  an  additional 
charge  was  imposed  of  10  marks  for  each  further  100  talks. 
This  charge  aroused,  of  course,  much  opposition  at  the  time 
from  the  interests  adversely  affected,  but  was  nevertheless 
maintained.1  Yet  it  failed  to  make  up  the  deficits  on  that  branch 
of  the  service.  In  1906  the  average  compensation  received  by  the 
telephone  administration  for  such  flat-rate  long-distance  traffic  was 
barely  10  pfennigs  per  message,  whereas  the  lowest  long-distance 
toll  rate  was  twice  as  great.  The  result  was  a  deficit  of  a  quarter 
of  a  million  marks  on  the  long-distance  service,  without  taking 
into  account  the  fixed  charges.  This  deficit  converted  the  small 
surplus  that  was  derived  from  the  exchange  business  into  a  con- 
siderable loss  on  the  operation  of  the  whole  telephone  undertaking. 
This  special  statement  by  the  telephone  administration  cannot 
easily  be  verified  by  an  independent  examination  of  its  published 
annual  reports.2  The  total  receipts  of  the  combined  postal,  tele- 
graph, and  telephone  services  in  the  financial  year  1906  were 
51,349,145.16  marks.  The  total  expenditures  were  42,167,234.21 
marks.  The  surplus  was  9,181,910.95  marks.  This  was  the  most 
favorable  showing  which  had  ever  been  made  since  the  establish- 
ment of  the  telephone  business.  Yet  the  surplus  is  reckoned  with- 
out making  any  allowance  for  fixed  charges,  that  is,  for  the  interest 
on  the  capital  invested  in  the  plant  required  to  render  the  service 
and  the  contributions  towards  the  sinking  funds  required  for  its 

1  HGK  Oberbayern,  1903,  pp.  76-79. 

1  Cf .  Statistischer  Bericht  iiber  den  Betrieb  der  Kgl.  Bayer.  Posten  und  Telegraphen 
im  Verwaltungsjahre  1906,  p.  3. 


172  PUBLIC  OWNERSHIP  OF  TELEPHONES 

amortization.  The  Bavarian  statement  shows  an  operating  ratio 
of  82.1  %,  which  is  higher  than  sound  undertakings  of  a  similar 
sort  are  in  general  able  to  work  under.  According  to  the  pub- 
lished statement,  19.3  %  of  the  gross  receipts  of  the  combined  ser- 
vice were  derived  from  the  telegraphs  and  telephones  alone,  but 
of  the  total  current  expenditures  74.9  %  were  ascribed  to  the  joint 
account  of  the  combined  postal,  telegraph,  and  telephone  services. 
Hence,  the  public  is  not  able  to  judge  of  the  position  of  the  tele- 
phone business  separately.  But  the  total  capital  expenditure  for 
the  construction  of  telegraph  and  telephone  plant  is  stated  to  be 
61,452,021.83  marks  at  the  end  of  the  financial  year  1906.  On  this 
interest  is  paid  at  the  rate  of  3.5  %  out  of  the  general  funds  of  the 
government.  The  allowance  that  should  be  made  for  depreciation 
over  and  above  the  expenses  of  maintenance  is  not  easy  to  ascer- 
tain. Different  kinds  of  plant  wear  out  at  different  rates  of  speed. 
Underground  cable  will  last  a  long  time.  Switchboards,  on  the  other 
hand,  are  comparatively  short-lived.  The  rate  of  depreciation, 
like  the  expense  of  maintenance,  ought  to  be  computed  separately 
for  each  class  of  apparatus.  The  average  life  of  telephone  plant 
is  not  the  same  in  different  localities  under  different  standards  of 
construction.  Moreover,  telephone  plant  is  liable  to  become  ob- 
solete before  it  is  worn  out,  and  must  then  be  replaced  by  more 
efficient  equipment.  The  Chicago  Telephone  Commission  of  1907 
estimated  that  a  reasonable  allowance  for  depreciation  under  the 
conditions  prevailing  in  Chicago  was  8  %  per  annum  of  the  capital 
value  of  the  plant.  This  allowance  probably  would  not  be  far 
wrong  for  the  Bavarian  telephone  system. 

On  this  basis,  the  total  fixed  charges  of  the  Bavarian  system  in 
1906  may  be  computed  at  11.5  %  of  its  capital-expenditure.  This 
basis  of  computation  may  be  employed  with  the  more  confidence 
since  under  public  ownership  there  is  a  greater  probability  of  corre- 
spondence between  the  stated  capitalization  and  the  actual  quan- 
tity of  capital  invested  in  the  plant  than  there  is  in  the  case  of  a 
private  corporation.  Hence  the  margin  of  error  is  smaller.  On 
this  basis,  then,  there  should  have  been  an  allowance  for  fixed 
charges  in  the  Bavarian  telegraph  and  telephone  undertaking  in 
1906  of  over  7,000,000  marks.  Such  an  allowance  more  than  wipes 


THE  INTRODUCTION  OF  MEASURED  SERVICE       173 

out  the  share  of  the  surplus  on  the  combined  postal,  telegraph,  and 
telephone  services,  that  should  be  ascribed  to  the  latter  branch 
of  the  undertaking,  on  the  basis  of  the  proportion  of  the  gross 
receipts  that  is  derived  from  the  operation  of  the  telegraphs  and 
telephones.  Unquestionably,  regarded  as  a  commercial  under- 
taking, the  Bavarian  telegraph  and  telephone  business  is  unprofit- 
able. In  what  proportions  this  loss  is  distributed  between  the  two 
branches  of  the  undertaking  cannot  be  ascertained  from  the  ordi- 
nary published  reports,  but  there  is  every  reason  for  believing  that 
the  special  statement  of  the  telephone  administration  in  regard  to 
the  proposed  rate  reform  of  1908  is  correct. 

In  Bavaria  the  unprofitableness  of  the  telephone  service  had 
been  recognized  for  some  time  by  the  Landtag.  On  divers  occa- 
sions during  the  discussion  of  the  postal  budgets,  representatives 
have  criticized  the  administration  because  its  telephone  under- 
taking was  not  conducted  on  a  sound  financial  basis.  The  ulti- 
mate result  of  the  discussions  in  the  Landtag  was  the  passage  of 
a  resolution  at  the  sitting  of  August  13,  1906,  requesting  the 
Bavarian  government,  "in  conjunction  with  the  imperial  postal 
and  telegraph  administration,  to  introduce  as  quickly  as  possible 
a  reformation  of  telephone  charges  on  the  basis  of  message  rates."  l 
Accordingly  the  Bavarian  cooperated  with  the  imperial  authori- 
ties in  the  preliminary  work  of  revising  the  schedule  of  rates. 
The  proposed  reform  was  announced  in  both  the  imperial  tele- 
phone area  and  Bavaria  at  the  end  of  1907. 

Before  bringing  its  proposal  into  Parliament,  the  German  tele- 
phone administration  laid  it  before  a  special  meeting  of  the  repre- 
sentatives of  the  various  economic  interests  of  the  empire.  This 
conference  took  place  January  7,  1908,  at  the  imperial  head- 
quarters in  Berlin,  and  was  attended  by  seven  delegates  from  each 
of  the  central  organizations  of  agriculture,  the  handicrafts,  in- 
dustry, and  commerce.2  In  this  conference,  the  effect  of  the  pro- 

1  Cf .  Siatischer  Bericht  iiber  den  Betrieb  der  Kgl.  Bayer.  Posten  und  Telegraphen  im 
Verwaltungsjahre  1906,  p.  16. 

2  Invitations  to  send  delegates  were  sent  to  the  Deutscher  Handelstag,  the 
Deutscher  Landwirtschaftsrat,  the  Handwerkertag,  and  the  "Vertretung  der  In- 
dustriellen."    Cf.  Staatssekretar  Kraetker's  declaration  in  the  Reichstag,  Feb.  14, 
1908. 


174  PUBLIC  OWNERSHIP  OF  TELEPHONES 

posal  was  thoroughly  discussed  from  the  different  standpoints  of 
the  various  interests  to  be  affected.  The  inevitable  clash  between 
urban  and  rural  districts  produced  a  discussion  that  lasted  from 
10  A.  M.  until  7  in  the  evening.  The  proposals  had  to  be  modified 
in  some  respects  in  order  to  secure  the  support  of  a  majority  of  the 
delegates,  but  in  a  slightly  amended  form  were  eventually  adopted 
despite  the  protests  of  the  minority.  The  final  result  was  duly 
reported  in  the  next  ensuing  editions  of  the  official  organs  of  the 
various  interests  in  attendance.1 

The  long-distance  rate  of  75  pfennigs  for  the  new  stage  of  100 
to  250  kilometers  was  universally  welcomed  and  more  than  com- 
pensated for  the  increase  of  the  rates  for  the  higher  stages.  On  the 
other  hand,  the  conference  almost  unanimously  declared  the  pro- 
posed reform  of  the  exchange  rates  unacceptable  unless  the  mes- 
sage rate  were  reduced  to  the  uniform  level  of  4  pfennigs  a  talk. 
A  strong  minority,  moreover,  though  recognizing  the  injustice  of 
fiat  rates  in  their  existing  form,  declared  itself  to  be  opposed  to 
their  total  abolition.  They  desired  that  flat  rates  be  retained  in 
the  form  of  a  schedule,  graduated  not  only  as  at  present  in  accord- 
ance with  the  varying  size  of  different  exchange  systems,  but  also 
in  accordance  with  the  differences  in  the  utility  of  the  service  to 
large  and  small  users  in  the  same  exchange  system.  The  adminis- 
tration, however,  was  determined  that  flat  rates  should  not  be 
retained  in  any  form.  In  order  to  secure  a  majority  for  its  plan, 
it  not  only  consented  that  the  message  rate  should  be  reduced  to 
a  uniform  basis  of  4  pfennigs  for  all  messages,  but  conceded  the 
establishment  of  a  new  class  of  exchange  systems  containing  those 
with  less  than  500  subscribers.  For  this  class  the  ground  rate 
should  be  still  further  reduced  by  10  marks.  On  this  basis  the 
administration's  plan  of  reform,  including  the  total  abolition  of 
flat  rates,  received  the  assent  of  the  majority  of  the  conference. 

Thus  the  preliminary  victory  was  gained  by  the  rural  interests. 
The  preference  to  be  accorded  them  was  even  greater  than  origi- 
nally contemplated  by  the  administration,  for  not  only  was  the 
ground  rate  in  the  smallest  exchanges  reduced  twice  as  much  as 

1  See  esp.  Allgemeine  Handwerker-Zeitung,  Jan.  u,  1908;  cf.  also  Zeitschr if t  far 
Agrarpolitik,  1908,  p.  34.  See  also  A.  P.  T.,  1908,  p.  143. 


THE  INTRODUCTION  OF  MEASURED  SERVICE       175 

had  originally  been  planned,  but  also  the  message  rate  was  reduced 
for  the  first  2,000  talks  as  well  as  for  those  in  excess  of  that  num- 
ber. The  attempt  of  the  big  users  to  save  a  part  of  the  advantages 
that  accrued  to  them  under  the  existing  flat-rate  schedule  by  an 
appeal  to  the  small  users  in  the  same  locality  was  too  transparent. 
No  conceivable  schedule  of  rates,  which  would  enable  the  large 
users  to  obtain  their  telephone  service  for  less  than  would  be  the 
case  under  the  new  schedule  proposed  by  the  telephone  adminis- 
tration, could  enable  the  small  users  to  obtain  their  service  also 
for  less.  Within  the  limits  of  the  total  receipts  anticipated  from 
the  telephone  administration's  proposed  rates,  it  was  not  possible 
to  alter  that  proposal  to  the  advantage  of  one  party  without  put- 
ting the  other  in  a  less  favorable  situation.  The  representatives 
of  the  handicraftsmen  were  wise  enough  to  perceive  this.  It  was 
therefore  with  their  help  that  the  agricultural  interests  secured 
such  a  sweeping  victory. 

The  big  users  did  not  accept  the  defeat  as  final.  They  announced 
their  intention  of  fighting  the'reform  in  the  Reichstag,  and  started 
at  once  to  organize  public  opinion  against  the  total  abolition  of 
flat  rates.  They  directed  a  memorial  to  the  imperial  telephone 
authorities  protesting  against  the  proposed  reform,  which  was 
signed  by  eighty-four  commercial  associations  of  the  German 
capital.1  The  authors  of  this  memorial  pointed  out,  first,  that  the 
result  of  the  proposed  change  would  be  an  enormous  increase  of 
the  charges  for  telephone  service  in  Berlin.  Taking  the  average 
number  of  daily  talks  over  the  lines  of  flat-rate  subscribers  in 
Berlin  as  16,  the  average  annual  charge  on  the  basis  of  the  pro- 
posed message  rates  to  such  users  would  be  334  marks,  or  an 
increase  of  85%.  To  certain  classes  of  users  it  would  be  much  more. 
For  example,  the  average  increase  to  members  of  the  Verband 
Berliner  Spezialgeschafte  would  be  285%. 2  The  authors  of  the 
memorial  did  not  attempt  to  argue  that  these  users  should  not 
be  required  to  pay  more  than  they  were  then  paying.  Their  point 

1  Zur  Frage  der  Reform  der  Telefongebiihren.  Eingabe  des  Vereins  Berliner  Kaufleute 
tittd  I nduslr teller  und  des  Zenlral-Ausschusses  Berliner  kaufmdnnischer,  gewerblicher, 
und  induslrieller  Verelne  an  den  StaatssekreWr  des  Reichspostamts.  Berlin,  1908. 
Cited  as  Berlin  Eingabe. 

*_ Berlin  Eingabe,  p.  17. 


176  PUBLIC  OWNERSHIP  OF  TELEPHONES 

was,  either  that  such  an  enormous  increase  was  unnecessary,  or, 
in  case  the  estimate  of  the  telephone  administration  were  correct, 
the  introduction  of  its  proposed  schedule  of  rates  would  in  fact 
defeat  its  own  purposes. 

The  administration  based  its  calculation  on  the  effect  to  be  pro- 
duced by  the  contemplated  reform  on  the  assumption  that  the 
total  yield  of  the  telephone  service  should  not  be  greatly  altered.1 
It  started  with  the  statement  that  the  existing  financial  condition 
of  the  telephone  service  was  satisfactory.  Although  it  did  not 
profess  to  be  able  to  compute  with  accuracy  the  actual  profit  on 
the  telephone  branch  of  its  undertaking,  yet  it  could  state  confi- 
dently that  both  exchange  and  long-distance  business  yielded  a 
moderate  surplus.  After  deducting  from  the  gross  receipts  all 
operating  expenses  plus  the  charges  for  maintenance  and  for  the  re- 
newal of  worn-out  plant  as  well  as  interest  at  3.5%  on  the  capital 
which  had  been  invested,  this  net  profit  amounted  to  about 
10,000,000  marks  on  an  entire  investment  of  over  400,000,000 
marks,  and  was  derived  in  about  equal  proportions  from  the  ex- 
change and  the  long-distance  services.  This  profit  the  adminis- 
tration did  not  regard  as  unreasonable  in  view  of  the  facts  that  the 
telephone  business  was  an  uncertain  one  and  subject  to  unpre- 
dictable disturbance  by  the  progress  of  invention,  that  conse- 
quently wise  public  policy  required  the  gradual  extinction  of  the 
loans  incurred  on  account  of  construction,  and  that  the  admin- 
istration was  entitled  to  some  compensation  for  the  deficits  on 
the  telegraph  sendee,  especially  as  both  services  were  patronized 
by  the  same  classes  in  the  community.  Finally,  the  financial  con- 
ditions of  the  empire  (for  some  years  the  German  government  has 
regularly  failed  to  make  both  ends  meet)  forbade  the  adoption 
of  a  rate-policy  that  would  throw  any  part  of  the  burden  of  sup- 
porting the  telephone  service  on  the  shoulders  of  the  general  tax- 
payer. 

In  estimating  the  yield  of  the  proposed  schedule  of  rates,  the 

administration  was  forced  to  take  into  consideration  its  probable 

effect  in  diminishing  the  number  of  calls  which  would  be  sent 

under  the  message-rate  schedule  by  the  former  flat-rate  subscrib- 

1  Denkschrift,  1907,  pp.  6-9. 


THE  INTRODUCTION  OF  MEASURED  SERVICE       177 

ers.  The  administration  estimated,  as  has  already  been  stated, 
that  this  effect  would  be  the  reduction  of  the  average  number  of 
talks  per  line  in  the  empire  as  a  whole  by  40%.  On  this  basis  the 
gross  receipts  from  the  telephone  service  would  be  increased 
by  the  introduction  of  the  proposed  rates  from  79,000,000  to 
80,000,000  marks.  This  calculation  would  be  affected  by  the 
alterations  which  were  made  in  the  administration's  proposals  at 
the  preliminary  conference  with  the  representatives  of  the  various 
economic  interests.  Yet  the  proposal  must  have  been  framed  with 
a  view  to  leaving  some  latitude  for  later  concessions.  Unless  that 
were  the  case  the  administration  could  not  have  made  those  con- 
cessions without  imperilling  the  financial  soundness  of  its  under- 
taking and  thus,  as  the  authors  of  the  memorial  pointed  out, 
defeating  its  own  purposes. 

These  calculations,  however,  are  open  to  criticism  at  several 
points.  If  the  effect  of  the  proposed  reform  would  be  to  cause 
such  a  diminution  of  the  use  of  the  telephone  as  the  administra- 
tion anticipated,  it  ought  to  bring  with  it  appreciable  savings  in 
the  cost  of  performing  the  service.  But  the  administration  made 
no  allowance  for  such  savings.  On  the  other  hand,  if  the  anticipa- 
tions of  the  administration  were  not  realized,  there  would  be  a 
corresponding  increase  of  receipts  on  the  basis  of  the  existing  level  of 
expenditures.  In  either  case,  the  net  profits  after  the  reform  would 
be  greater  than  according  to  the  administration's  estimate.  Further- 
more, the  inevitable  future  growth  of  the  telephone  service  would 
bring  with  it  an  increase  of  receipts.  The  administration  had 
anticipated  the  latter  criticism  by  the  statement  that  the  cost  of 
rendering  the  service  increases  with  the  increase  in  its  magnitude 
and  complexity.  But  the  commercial  interests  could  justly  retort 
that  the  administration  had  made  public  absolutely  no  data  which 
would  support  such  a  statement.1  Finally,  the  published  German 
telephone  accounts  do  not  make  it  possible  to  distinguish  between 
that  portion  of  the  expenses  of  maintenance  which  should  properly 
be  charged  to  operating  expenses  and  that  which  should  be  charged 
to  the  capital  account.  Consequently,  the  administration  might 
defray  what  ought  to  be  capital  expenditures  out  of  current  re- 

1  Berlin  Eingabe,  pp.  27-28. 


178  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ceipts.  Such  a  policy  would  tend  to  conceal  the  true  rate  of  profit 
on  the  undertaking. 

The  effect  of  the  proposed  schedule  of  rates,  it  was  argued, 
would  be  the  conversion  of  the  telephone  undertaking  into  a 
source  of  revenue  for  the  imperial  government.  The  question  of 
the  wisdom  of  such  a  fiscal  monopoly  is  one  of  public  finance.  The 
telephone  is  an  undertaking,  the  benefits  of  which  to  individual 
members  of  the  community  can  be  separately  and  accurately 
measured.  Different  classes  of  the  community,  moreover,  share 
in  these  benefits  in  unequal  proportions.  Since  the  classes  which 
make  the  most  use  of  the  service  are  also  those  which  are  most 
able  to  bear  its  burdens,  there  is  no  reason  why  the  latter  should 
be  shifted  to  the  community  at  large.  A  governmental  telephone 
undertaking  should,  therefore,  be  self-supporting.  Whether  it 
should  be  more  than  self-supporting,  is  a  question  of  fiscal  expe- 
diency which  cannot  be  answered  without  taking  into  considera- 
tion the  alternative  sources  of  revenue  which  at  the  given  time 
and  place  are  available.  In  general,  a  government  should  be  ex- 
tremely reluctant  to  levy  a  tax  on  an  instrument  of  public  commu- 
nication, especially  on  one  like  the  telephone,  which  is  destined 
particularly  for  the  transmission  of  intelligence.  To  the  extent  to 
which  such  a  tax  would  fall  on  the  shoulders  of  the  business  com- 
munity it  is  open  to  the  same  objections  that  apply  to  all  taxation 
of  the  agents  of  production.  The  German  imperial  government  is 
unquestionably  hard  pressed  for  new  sources  of  revenue.  In  view 
of  the  actual  political  state  of  Europe,  the  best  way  of  establishing 
a  balance  between  income  and  outgo  —  the  reduction  of  military 
and  naval  expenditures  —  is  not  open  to  it.  The  almost  intoler- 
able burden  of  preparing  for  war  in  time  of  peace  has  brought, 
and  is  still  bringing,  disorder  and  confusion  into  the  financial  ad- 
ministration of  almost  every  important  European  government. 
Under  the  existing  conditions  there  is  no  help  for  that. 

The  German  government  was  charged  with  aiming  to  convert 

its  telephone  undertaking  into  a  fiscal  monopoly  even  under  the 

rate  schedule  of  1899.*  It  is  doubtful,  however,  if  the  level  of  rates 

established  at  that  time  was  higher  than  was  required  in  order 

1  Schwaighofer,  Grundlagen  der  Preisbildung,  pp.  80-8 1. 


THE  INTRODUCTION  OF  MEASURED   SERVICE      179 

to  earn  a  reasonable  profit.  The  Bavarian  schedule,  which  was  not 
so  very  much  lower,  did  not  bring  in  a  reasonable  profit.  The  evi- 
dence on  which  a  reliable  judgment  can  be  based  has  not  been 
made  available  to  the  public.  It  seems  very  probable,  however, 
that  the  proposed  reform  of  1908  would,  if  adopted  in  its  original 
form,  have  enabled  the  government  to  obtain  a  not  inconsiderable 
net  revenue  from  its  telephone  undertaking.  The  problem  of  the 
best  disposition  of  such  a  profit  in  the  interests  of  a  community 
at  large  is  an  extremely  complicated  one.  Its  solution  depends, 
on  the  one  hand,  on  the  incidence  and  relative  weight  of  the 
monopoly  profit  as  compared  with  the  alternative  sources  of  addi- 
tional revenue  that  are  available,  and  on  the  other,  on  the  satis- 
faction that  could  be  derived  by  re-investing  the  monopoly  profit 
in  the  telephone  business,  or  remitting  it  to  the  users  in  the  form 
of  reduced  rates.  The  solution  of  this  problem  is  like  the  trying 
on  of  a  new  shoe.  That  shoe  is  first  tried  on  which  seems  likely  to 
give  the  most  general  satisfaction.  Then  later  changes  are  made 
where  the  first  shoe  pinches. 

A  more  fundamental  point  was  raised  by  another  criticism 
which  was  directed  against  the  proposal  of  1908  by  the  representa- 
tives of  the  large  users.1  The  measurement  of  the  utility  of  tele- 
phone service  on  the  basis  of  the  number  of  messages  is  more  just, 
it  was  urged,  in  appearance  than  in  reality.  For  who  can  tell  what 
value  is  set  upon  a  message  by  its  sender?  To  one  it  is  high,  to 
another  low.  Doubtless  many  messages  of  trivial  importance  are 
sent  over  the  wires  of  flat-rate  subscribers.  Nevertheless,  in  the 
opinion  of  the  authors  of  the  memorial,  that  was  not  the  habit  of 
business  men.  Their  time  was  too  valuable  to  be  wasted  in  idle 
talk.  In  fact,  the  telephone  had  become  such  an  indispensable 
factor  in  business  life  that  its  use  could  not  be  curtailed.  Hence 
the  large  users  would  pay  the  whole  of  the  increased  cost  of  tele- 
phone service  that  would  be  produced  by  the  proposed  reform 
on  the  basis  of  their  existing  use  of  the  service,  rather  than  cut 
down  the  size  of  their  telephone  bill  by  dispensing  with  any  por- 
tion of  their  telephonic  communication. 

If  this  prognostication  be  correct,  certain  deductions  may  be 

1  Berlin  Eingabe,  pp.  12,  21. 


180  PUBLIC  OWNERSHIP  OF  TELEPHONES 

drawn  from  it  which  the  commercial  interests  would  be  the  last 
to  welcome.  The  statement  could  be  true  only  upon  the  hypothesis 
that  the  large  users  were  then  paying  less  than  the  service  was  felt 
to  be  worth,  and  that  under  the  proposed  rates  they  would  not 
be  called  upon  to  pay  more  than  its  actual  utility.  Unless  this 
were  so,  they  would  cut  down  their  use  of  the  service.  Now  the 
large  users  were  numerically  decidedly  in  the  minority  even  in  the 
large  cities.  Thus,  during  the  year  1907  the  distribution  of  tele- 
phone traffic  among  the  subscribers  to  the  Berlin  exchange  system 
was  as  follows:1  42%  of  the  total  number  of  subscribers  used  less 
than  3,000  calls;  28%  used  between  3,000  and  5,000;  25%  used 
between  5,000  and  10,000,  and  only  5%  used  over  10,000.  Even 
if  a  universal  reduction  of  rates  would  call  forth  as  much  new 
business  proportionally  to  their  numbers  among  large  users  as 
among  small,  the  increased  use  of  the  telephone  would  bring  a 
greater  total  amount  of  satisfaction  to  the  latter  than  to  the 
former.  For  the  fresh  traffic  called  into  existence  by  a  given  re- 
duction of  price  must  possess  the  same  final  degree  of  utility 
wheresoever  it  may  originate.  The  total  amount  of  fresh  traffic 
which  could  be  called  forth  by  a  given  reduction  of  price  would 
be  greater  among  the  small  than  among  the  large  users.  In  fact, 
a  reduction  of  price  to  the  big  business  users  of  the  telephone 
service  probably  would  not  call  forth,  even  proportionally  to  their 
numbers,  so  great  an  increase  of  traffic  as  among  smaller  users. 
In  any  case,  by  charging  the  former  more  nearly  in  accord  with 
the  utility  of  their  service,  a  considerable  increase  of  revenue 
would  be  obtained  which  could  be  applied  to  the  extension  of  the 
telephone  service  in  rural  districts  and  amongst  small  users  every- 
where. 

Moreover,  the  expense  of  rendering  the  service  in  the  large 
cities  is  greater  than  in  the  country  districts.  Hence,  the  expen- 
diture of  equal  sums  of  money  would  maintain  a  more  consider- 
able quantity  of  telephone  facilities  in  the  latter  than  in  the 
former.  Thus  the  application  of  all  surplus  profits  that  could  be 
obtained  from  the  large  urban  users  to  rural  extensions  would 
greatly  increase  the  utility  of  the  telephone  to  rural  users.  Since 

1  Berliner  TageUatt,  Feb.  13,  1908. 


THE  INTRODUCTION  OF  MEASURED  SERVICE        181 

the  winning  of  these  surplus  profits,  according  to  the  authors  of  the 
memorial,  would  not  cause  a  diminution  of  the  use  of  the  service 
by  the  urban  users  themselves,  such  a  policy  from  the  point  of 
view  of  the  community  as  a  whole  must  be  regarded  as  highly 
commendable.  Even  if  it  should  cause  a  decrease  in  the  use  of  the 
service  by  the  large  users  as  anticipated  by  the  telephone  ad- 
ministration, this  corresponding  diminution  of  the  utility  of  the 
service  to  large  users  would  be  more  than  counterbalanced  by,  its 
increased  utility  to  small  and  rural  users. 

It  was  this  policy  which  in  fact  underlay  the  proposals  of  1908.* 
Indeed,  it  seems  to  have  been  initiated  before  that  date  by  direct 
administrative  action.  The  representatives  of  the  telephone 
administration  declared  at  the  conference  of  January,  1908,  that 
already  the  annual  expenditures  for  exchange  systems  having  less 
than  300  subscribers  were  in  excess  of  the  receipts  from  such 
systems.2  Be  that  as  it  may,  the  proposals  of  1908  are  an  open 
declaration  that  the  purpose  of  the  German  telephone  admini- 
stration is  so  to  adjust  its  rates  for  telephone  service  as  to 
secure  from  it  the  maximum  of  utility  to  the  community  as  a 
whole.  In  order  to  do  this,  the  administration  will,  if  necessary 
in  order  to  bring  the  cost  of  service  in  the  same  relation  to  its 
utility  for  all  classes  in  the  community,  charge  certain  classes  of 
telephone  users  a  higher  price  for  their  particular  service  than 
would  be  required  to  maintain  that  particular  service  alone  inde- 
pendently of  the  collective  service  of  the  community  at  large. 

Thus  the  ownership  of  the  telephone  business  by  the  German 
government  enables  it  to  establish  the  rates  with  a  view  to  the  . 
promotion  of  the  general  welfare.  If  the  German  telephone  in- 
dustry to-day  were  thrown  freely  open  to  private  enterprise,  it  is 
possible  that  competitive  exchange  systems  would  be  established 
in  the  large  cities  and  that  rates  would  be  reduced  for  large  users. 
For  the  present  urban  exchange  rates  in  large  cities  are  based  on 
the  utility,  not  on  the  cost  of  the  service.  But  no  private  busi- 
ness man  would  establish  telephone  undertakings  in  the  rural  dis- 
tricts. For  the  business  is  already  being  conducted  for  less  than 
cost  in  those  districts.  The  government,  however,  would  speedily 

1  Berlin  Eingabe,  p.  30.  *  Ibid.,  p.  23. 


182  PUBLIC  OWNERSHIP  OF  TELEPHONES 

be  deprived  of  the  monopoly  profits  which  are  earned  in  the  large 
urban  areas,  and  would  have  to  abandon  the  rural  business  or  carry 
it  on  thereafter  at  the  expense  of  the  general  taxpayer.  On  the 
other  hand,  if  the  telephone  business  had  been  confided  from 
the  beginning  to  a  private  monopolist,  and  if  the  monopolist  had 
intelligently  pursued  his  own  interest,  he  also  would  have  estab- 
lished the  rates  in  large  urban  exchanges  on  the  basis  of  the  utility 
of  the  service,  but  he  would  not  have  extended  the  service  to  the 
rural  districts  as  freely  as  the  government  has  done,  and  where 
he  did  enter  the  rural  districts,  he  would  not  have  established  such 
low  rates  as  the  existing  government  rates. 

The  withdrawal  of  the  arbitrary  power  over  rates  from  the 
hands  of  private  business  men  has  had  the  further  advantage 
that  it  has  entirely  prevented  the  nuisance  of  personal  discrimi- 
nation. The  vesting  of  the  complete  control  over  rates  in  the 
hands  of  the  government  has  the  disadvantage,  however,  that  it 
opens  the  door  to  local  or  class  discrimination.  Such  discrimina- 
tions in  the  making  of  rates  in  public  business  undertakings  is  but 
one  aspect  of  the  danger  which  is  always  present  in  governmental 
action,  the  danger  of  the  tyranny  of  the  class  that  controls  the 
government  over  the  rest  of  the  community.  In  popular  govern- 
ments this  danger  takes  the  form  of  oppression  of  the  minority  by 
the  majority.  The  only  safeguard  against  the  abuse  of  power 
by  those  in  authority  lies  in  the  good  sense  and  innate  justice  of 
those  who  constitute  the  source  of  authority.  "It  the  salt  hath 
lost  its  savor,  wherewith  shall  it  be  salted?"  The  German  tele- 
phone rate-policy  has  been  by  no  means  wholly  above  criticism. 
It  is  not  in  the  nature  of  human  policies,  no  matter  how  wisely 
devised,  no  matter  with  what  sagacity  and  devotion  to  the  com- 
mon weal  they  may  be  administered,  ever  to  be  wholly  above 
criticism.  Yet  despite  the  flaws  in  the  record  of  their  telephone 
rate-policy,  the  Germans  cannot  be  denied  the  praise  of  having 
established  a  more  reasonable  schedule  of  rates  than  would  have 
been  established  under  a  regime  of  private  enterprise. 


CHAPTER  XI 

THE   LABOR  SITUATION  IN   THE   GERMAN  TELEPHONE   SERVICE 

AN  important  economic  question  still  remains,  namely:  how 
has  the  state  employer  dealt  with  the  labor  situation  in  the  tele- 
phone service?  This  question  carries  the  inquiry  out  of  the  realm 
of  production,  strictly  speaking,  and  into  that  of  distribution. 
The  term  distribution  denotes  che  process  by  which  the  remun- 
eration of  the  several  agents  of  production  is  determined.  The 
remuneration  of  the  wage-earners  includes  the  command  over 
the  desirable  commodities  of  life,  which  the  worker  obtains  by 
virtue  of  his  wage  or  salary,  and  also  his  command  of  leisure  in 
which  to  enjoy  them. 

In  this  branch  of  the  inquiry  the  temptation  is  strong  to  com- 
pare the  conditions  of  labor  in  different  countries.  On  the  ground 
of  such  a  comparison,  it  might  be  argued  that,  since  the  employees 
were  better  situated  as  regards  wages  and  hours  of  employment 
in  one  country  than  in  another,  the  form  of  industrial  organization 
or  the  character  of  business  management  was  better  in  the  one 
than  in  the  other.  Or  from  the  same  premises  it  might  be  argued 
that  the  one  set  of  employees  had  greater  cause  for  satisfaction 
with  their  lot  than  had  the  other.  Such  comparisons  have  in  fact 
been  made.1  They  are,  however,  likely  to  be  misleading.  The 
remuneration  of  labor  of  similar  grades  at  any  moment  varies 
greatly  from  place  to  place.  Many  causes  conspire  to  prevent  all 
workmen  in  the  same  grade  of  employment  from  offering  their 
services  in  the  same  market.  While  these  obstacles  to  free  inter- 
national competition  for  employment  endure,  there  can  be  no 
standard  universal  rates  of  wages  for  the  various  grades  of  employ- 

1  Jules  Walter:  Les  Administrations  postales  et  ttttgraphiques.  10  fascicules. 
Troyes.  1902-03.  The  author's  conclusion  was  that  the  French  postal  and  tele- 
graph employees  had  less  cause  for  dissatisfaction  with  their  lot  than  had  those  in 
any  other  of  the  ten  European  countries,  in  which  he  compared  the  wages  and  condi- 
tions of  employment.  To  the  present  writer  it  seems  wholly  misleading  to  draw  such 
conclusions  from  such  premises. 


184  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ment.  The  differences  that  may  be  ascertained  between  the  re- 
muneration of  labor  in  different  countries  indicate,  more  than 
anything  else,  differences  in  the  efficiency  of  labor  in  those  coun- 
tries. The  most  profitable  comparison  therefore  that  can  be  made, 
with  a  view  to  estimating  the  effect  of  public  ownership  on  the 
distribution  of  wealth,  is  one  between  the  position  of  governmental 
employees  and  private  employees  of  similar  position  in  the  eco- 
nomic scale  in  the  same  country.  Such  a  comparison  would 
require  a  minute  study  of  the  general  conditions  of  labor  in  the 
several  countries,  and  would  be  a  task  wholly  beyond  the  purpose 
of  the  present  investigation. 

It  will  not  be  uninstructive,  however,  to  compare  the  relations 
between  employer  and  employed  under  governmental  and  private 
ownership.  Next  to  the  actual  conditions  of  employment  in  a 
given  occupation,  the  most  important  consideration  affecting  the 
lot  of  the  employed  is  the  facility  of  securing  changes  in  the  actual 
conditions  in  response  to  changes  in  the  productiveness  of  labor 
and  in  the  general  situation  of  the  working-classes.  In  the  long 
run  the  relation  between  employer  and  employed  is  probably  an 
even  more  important  factor  in  the  welfare  of  the  latter  than  is 
their  particular  wage  at  a  fixed  moment.  The  matter  is  no  less 
important  from  the  point  of  view  of  the  employer. 

At  first  thought  it  might  seem  that  there  could  be  no  conflict 
of  interest  between  employer  and  wage-earner  in  a  governmental 
business  undertaking,  and  that  there  should  be  therefore  no  incen- 
tive to  the  organization  of  governmental  employees  into  associa- 
tions for  the  purpose  of  safeguarding  their  economic  interests. 
The  entire  staff  of  a  public  business  undertaking,  the  director, 
the  highly  trained  technical  experts,  the  clerks,  and  the  unskilled 
manual  laborers  are  equally  the  servants  of  the  state,  and  the 
state  is  nothing  more  nor  less  than  the  sum  of  its  citizens,  whatever 
be  their  position  in  the  economic  scale.  The  various  grades  of 
hand-  and  brain-workers  required  to  carry  on  a  public  business 
undertaking  are  accordingly  in  a  sense  their  own  employers,  or 
at  least  have  the  same  share  in  shaping  the  conditions  of  their  em- 
ployment as  in  directing  any  other  branch  of  governmental  activ- 
ity. Wage-earners  in  the  employ  of  the  state  would,  apparently,  be 


THE  LABOR  SITUATION  IN  GERMANY  185 

forced  to  improve  their  lot  through  some  form  of  political  action. 
The  forces  which  have  produced  trade-unionism  among  wage- 
earners  in  private  industry  might  be  expected,  therefore,  to  pro- 
duce a  political  party,  representing  the  public  employees  of  all 
ranks,  in  opposition  to  all  other  political  parties,  representing  the 
community  in  its  capacity  of  owner  of  public  undertakings. 

In  practice  this  has  not  happened.  In  no  continental  country 
do  the  employees  of  the  state  constitute  a  body  of  sufficient 
numerical  importance  to  be  able  to  wield  a  decisive  influence  in 
party  politics.  If  the  two-party  system  prevailed  on  the  continent, 
it  might  conceivably  be  possible  for  an  organization  of  public 
employees  to  secure  the  balance  of  power,  and  give  their  support 
to  that  one  of  the  two  rivals  which  would  grant  them  the  greatest 
favors  in  return.  But  the  two-party  system  does  not  exist  there. 
The  two-party  system,  in  itself  an  unnatural  mode  of  expressing 
the  wide  range  of  diverse  economic  interests  and  political  ideas 
which  exist  in  every  large  community,  is  a  peculiar  product  of 
Anglo-Saxon  political  evolution,  and  is  maintained  in  its  artificial 
rigidity  by  political  practices  and  special  legislation,  which  the 
continental  peoples  do  not  now  possess  and  have  no  desire  to 
imitate.  In  order  to  exercise  any  appreciable  influence  on  the 
policy  of  the  government,  the  public  employees  must  act  in  accord 
with  that  one  of  the  parties  of  the  day  which  is  most  in  sympathy 
with  their  particular  political  views.  In  Germany  this  party  is  the 
Social  Democracy. 

There  is  another  reason  for  the  absence  of  an  independent 
political  movement  on  the  part  of  the  employees  of  the  state.  The 
state  which  engages  in  business  undertakings  really  assumes  a 
double  task.  In  its  capacity  of  political  organization  of  the  com- 
munity, it  comprises  both  employer  and  employed;  but  in  its 
economic  capacity  of  business  man,  it  is  employer  alone.  But  the 
state  as  such  can  act  only  through  the  agency  of  individuals,  one 
or  more  of  whom  must  be  set  apart  from  the  rest  in  order  to  per- 
form a  particular  function.  In  practice  the  public  business  man 
function  is  distributed  among  a  variety  of  individuals  and  organi- 
zations, one  of  which,  however,  must  necessarily  be  intrusted 
with  the  task  of  directing  the  wage-earners  employed  by  the  state. 


l86  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Such  a  director  of  a  governmental  undertaking  feels  the  respon- 
sibilities of  his  position.  He  holds  a  great  trust  on  behalf  of  his 
employer,  the  state,  and  can  scarcely  fail  to  assume  the  authority 
towards  the  employees  that  is  necessary  to  exercise  such  a  trust, 
according  to  the  notions  current  round  about  him  among  employ- 
ers in  private  industry.  He  will  be  master  in  his  own  house,  as  the 
German  employers  are  fond  of  saying,  and  will  not  tolerate  inter- 
ference in  his  conduct  of  affairs  by  those  subjected  to  his  control. 
In  the  mental  make-up  of  such  a  public  business  manager,  there 
may  also  be  an  admixture  of  that  trait  of  human  nature  which 
sometimes  leads  those  in  authority  to  oppose  their  will  to  that  of 
their  subordinates,  simply  to  show  that  they  are  in  authority. 
The  greater  the  distance  in  the  economic  scale  between  the  director 
and  a  particular  group  of  public  employees,  the  greater  the  temp- 
tation of  the  former  to  display  his  authority,  and,  according  as 
the  employees  of  the  state  stand  near  to  or  remote  from  the  source 
of  authority,  will  their  sympathies  incline  towards  or  away  from 
the  efforts  to  maintain  it. 

Finally,  a  variety  of  causes,  historical  and  economic,  have 
brought  it  to  pass  that  the  state  does  not  treat  all  its  employees 
alike.  Not  only  are  the  wages  of  the  different  classes  of  employ- 
ees unequal,  but  also  their  hours  of  employment,  and,  most  im- 
portant of  all,  their  tenure  of  their  positions.  The  higher  grades 
of  employees  enjoy  a  greater  certainty  of  employment  than  do  the 
lower,  and  the  expectation  of  more  generous  treatment  in  case 
their  services  have  to  be  dispensed  with,  either  on  account  of 
advancing  age,  disability,  or  any  other  cause.  The  differences  in 
the  conditions  of  employment  of  the  different  grades  of  govern- 
mental employees  are  the  result  of  the  differences  in  the  customary 
treatment  of  similar  grades  of  service  in  the  competitive  labor 
market,  of  the  more  sudden  and  wider  fluctuations  in  the  demand 
for  unskilled  than  for  skilled  and  highly  specialized  workers,  and 
of  the  fact  that  when  governments  first  began  to  go  into  business 
on  a  large  scale  they  extended  the  principles  of  employment  that 
had  long  been  applied  to  political  departments  to  the  category  of 
pure  business  undertakings,  thus  extending  in  the  economic  field 
the  political  distinctions  between  those  in  authority  and  those  in 


THE  LABOR  SITUATION  IN  GERMANY  187 

subjection  to  authority.  An  almost  military  code  of  discipline 
grew  up  in  public  business  undertakings,  which  made  it  an  easy 
matter  for  the  public  business  managers  to  maintain  over  the 
wage-earners  in  the  employ  of  the  state  an  authority  far  more 
rigid  than  that  which  the  private  captain  of  industry  was  ever 
able  to  assert. 

Under  these  circumstances  the  growth  of  a  collective  conscious- 
ness among  the  various  classes  of  employees  of  the  state  has  been 
no  less  rapid  than  among  corresponding  classes  of  wage-earners 
in  private  employment.  This  fact  has  weakened  the  force  of  any 
independent  political  movement  which  public  employees  as  a 
body  might  have  inaugurated,  but  has  strengthened  the  incentives 
to  the  formation  of  trade-unions.  At  the  same  time  the  confu- 
sion of  political  and  economic  authority  in  the  hands  of  the  man- 
agers of  governmental  business  undertakings  has  strengthened  the 
power  of  the  latter  to  oppose  trade-union  action,  and  shifted 
the  balance  of  power  between  employer  and  employee,  greatly 
to  the  disadvantage  of  the  wage-earner  in  the  employ  of  the  state 
as  compared  with  his  mate  in  private  employment.  Consequently 
we  should  expect  to  find  the  same  spirit  of  association  among  the 
former  as  among  the  latter  class  of  wage-earners,  but  we  should 
not  expect  to  find  the  progress  of  trade-unionism  so  rapid. 

The  breaking-down  of  the  community  of  interest  between 
public  employees  as  a  body  and  the  strengthening  of  the  bonds  of 
sympathy  between  the  various  classes  of  public  employees  and  the 
corresponding  classes  in  private  industry  has  been  promoted  by 
the  legislation  of  the  imperial  government  and  by  the  adminis- 
trative policy  of  those  in  authority  since  the  establishment  of  the 
empire.  Germany  is  not  a  democratic  country,  either  in  prin- 
ciple or  in  practice.  The  policy  of  Bismarck  was  to  tolerate  the 
efforts  of  the  working-classes  to  improve  their  position  by  collec- 
tive action  until  those  efforts  appeared  on  the  point  of  becoming 
important.  It  was  not  in  the  Bismarckian  scheme  of  things  that 
the  working-classes  should  become  an  important  factor  in  the 
direction  of  the  destiny  of  the  empire.  Under  the  code  of  blood 
and  iron  the  working-classes  were  expected,  not  to  command,  but 
to  obey.  Hence  (1878)  the  occasion  of  two  mad  attempts  by  irre- 


l88  PUBLIC  OWNERSHIP  OF  TELEPHONES 

sponsible  fanatics  to  assassinate  the  Emperor  was  seized  for  the 
purpose  of  suppressing  altogether  the  independent  political  move- 
ment of  the  laboring-classes. 

The  special  legislation  against  the  Social  Democracy  incident- 
ally blotted  out  the  trade-union  movement  among  the  German 
working-classes,  but  it  could  not  suppress  the  mental  activity  of 
wage-earners  as  individuals.  In  1881  Bismarck  issued  the  famous 
message  in  which  he  laid  down  his  plan  for  the  destruction  of  the 
foundation  of  the  independent  working-class  movement  through 
the  great  scheme  of  imperial  workmen's  insurance.  But  Bismarck 
had  reckoned  without  his  host.  What  the  German  working-classes 
wanted  was  not  simply  liberty  to  eat,  drink,  and  be  merry,  under 
the  auspices  of  a  state  in  which  much  might  be  done  for  them  but 
nothing  by  them,  but  liberty  to  take  part  in  the  shaping  of  their 
own  destinies.  The  lapse  of  the  special  legislation  against  the 
Social  Democracy  in  1890  was  followed  by  an  unprecedented 
growth  both  of  the  Social  Democratic  party  and  of  trade-unionism. 

In  the  same  year  (1890),  under  the  enthusiastic  leadership  of 
the  young  Emperor,  the  imperial  government  laid  down  a  fresh 
program  of  legislation  on  behalf  of  the  working-classes.  The  ring- 
ing message  of  February  4  was  followed  by  an  international 
conference  for  the  protection  of  the  wage-earners  of  all  countries, 
and  this  by  the  replacement  of  the  Iron  Chancellor  by  a  man  more 
in  sympathy  with  the  new  policy.  But  the  international  confer- 
ence was  barren  of  practical  results,  the  new  Chancellor  was 
unable  to  overcome  the  resistance,  active  and  passive,  of  the  con- 
servative forces  that  had  so  long  controlled  German  politics,  and 
within  half  a  dozen  years  the  fall,  first  of  Count  Capri vi,  then  of 
Baron  von  Berlepsch,  marked  the  exhaustion  of  the  impulse  to 
social  reform  given  by  the  accession  of  the  second  William. 

One  article  of  the  proposed  scheme  of  reform,  laid  down  in  the 
imperial  message  of  February  4,  1890,  is  worthy  of  more  than 
passing  notice.  This  was  the  declaration  that  governmental 
employment  should  be  model  employment.1  This  statement 
appears  on  its  face  almost  self-evident.  In  reality  it  was  revolu- 
tionary. In  the  first  place  it  was  contrary  to  all  precedent.  Bis- 
1  Staats-  und  Gemeinde-Betriebe  sollen  Musterbetriebe  sein. 


THE  LABOR  SITUATION  IN  GERMANY  189 

marck's  measures  for  the  improvement  of  the  condition  of  the 
working-classes,  particularly  his  great  scheme  of  workmen's 
insurance,  had  been  intended  to  apply,  and  in  fact  did  apply,  to 
all  wage-earners  alike,  regardless  of  the  status  of  their  employer. 
In  the  second  place,  the  deliberate  discrimination  between  wage- 
earners  in  the  employ  of  the  state  and  those  in  the  employ  of 
private  employers  was  certain  to  arouse  discontent  among  the 
latter  class  of  wage-earners.  They  would  be  incited  to  demand 
similar  treatment  from  their  employers,  and  the  latter  could  not 
well  refuse,  if  they  would  avoid  strikes.  In  either  event  the  action 
of  the  state  in  setting  up  in  business  as  a  model  employer  would 
tend  greatly  to  unsettle  the  relations  between  capital  and  labor, 
and  to  disturb  the  conditions  under  which  private  business  would 
have  to  be  carried  on.  The  relations  between  the  state  employer 
and  its  wage-earners  from  this  moment  on,  therefore,  deserve 
especial  attention. 

The  policy  of  the  German  government  towards  its  employees 
had  always  been  a  matter  of  importance.  The  business  under- 
takings carried  on  by  the  Imperial  Chancellor  in  his  capacity  of 
chief  of  the  administration,  not  only  of  the  empire,  with  its  postal 
and  telegraph  system,  but  of  the  kingdom  of  Prussia,  with  its  sys- 
tem of  governmental  railroads,  the  largest  in  the  world  under  a 
single  management,  to  say  nothing  of  numerous  lesser  undertak- 
ings, made  him  by  far  the  greatest  employer  of  labor  in  the  world. 
Hitherto,  however,  that  policy  had  possessed  nothing  to  distin- 
guish it  from  that  of  other  great  employers,  the  Krupps,  for  in- 
stance. Both  alike  refused  to  deal  with  their  employees  except 
as  individuals.  Both  alike  established  welfare  institutions  for 
their  employees,  actuated,  partly  no  doubt  by  humanitarian  im- 
pulses, but  partly  also  by  a  desire  to  gain  a  stronger  hold  over  their 
loyalty  than  could  be  secured  by  the  prospect  of  uncertain  em- 
ployment alone.  In  neither  case  did  the  wage-earners,  at  least  the 
lower  grades  of  wage-earners,  have  any  claim  to  employment  or 
any  voice  in  the  determination  of  the  conditions  of  advancement, 
or  any  guarantee  against  dismissal  for  causes  beyond  their  own 
control.  It  is  to  protect  their  interests  under  such  conditions  of 
employment,  to  transfer  the  scene  of  the  wage-contract  from  the 


190  PUBLIC  OWNERSHIP  OF  TELEPHONES 

door  of  the  factory  to  the  floor  of  the  council-chamber,  that  wage- 
earners  of  sufficient  intelligence  and  under  favorable  conditions 
have  voluntarily  submitted  their  individual  will  to  their  collective 
will,  expressed  through  the  labor  organization  or  trade  union. 

It  must  not  be  supposed  that  the  condition  of  the  employees 
of  the  state  had  not  been  improved  in  the  absence  of  association 
on  their  part.  During  the  twenty  years  following  the  foundation 
of  the  empire  (1871-1890)  the  money  wages  of  the  German  postal 
employees  had  increased  by  rates,  varying,  according  to  the  cate- 
gory of  labor,  from  ten  to  ninety  per  cent.1  Real  wages  had  un- 
questionably increased  also,  although  less  rapidly  than  money 
wages.  But  workmen  who  have  increases  of  wages  thrust  upon 
them,  so  to  speak,  cannot  but  feel  that  they  would  have  secured 
greater  increases  if  they  had  been  in  a  position  to  bargain  intelli- 
gently. One  isolated  applicant  for  employment  in  an  industry 
employing  a  hundred  thousand  is  in  no  position  either  to  ascer- 
tain the  true  value  of  his  services  to  the  management  or  to  insist 
upon  the  reasonableness  of  his  demands,  if  by  chance  he  is  able 
to  formulate  them.  After  the  reversal  in  1890  of  the  policy  of  the 
government  towards  the  association  of  members  of  the  working- 
classes,  the  consciousness  of  the  defenselessness  of  their  position 
led  the  governmental  employees  to  take  advantage  of  their  oppor- 
tunity and  to  form  associations,  as  their  comrades  in  private 
employment  were  doing,  with  a  view  to  the  promotion  of  their 
economic  interests. 

The  only  association  of  postal  officials  for  the  promotion  of  their 
economic  interests  of  more  than  local  significance,  that  was  formed 
in  Germany  before  the  expiration  of  the  special  legislation  against 
the  Social  Democracy,  was  the  Bavarian  Union  of  Transportation 
Officials  (Bayrischer  Verkehrsbeamtenverein).2  This  association 

1  Jung  I,  p.  156. 

2  The  following  account  of  the  origin  of  trade-unionism  in  the  German  postal  and 
telegraph  service  is  taken  from  Kulemann:  Die  Gewerkschaftbewegung,  ist  edit.,  pp. 
316-331.  So  far  as  his  relation  is  based  on  the  debates  in  the  Reichstag,  it  has  been 
checked  by  the  present  writer  with  the  original  sources.  For  the  rest  Kulemann,  at 
the  time  of  writing  the  first  edition  of  his  Gewerkschaftsbewegung,  was  opposed  to  the 
principles  of  the  Social  Democracy,  and  free  from  bias  against  the  imperial  postal 
and  telegraph  authorities.   There  is  no  reason  for  supposing  that  he  has  misrepre- 
sented facts  no  longer  capable  of  verification  by  the  independent  investigator. 


THE  LABOR  SITUATION  IN  GERMANY  191 

was  founded  in  1883  and  was  open  to  the  higher  officials  of  the 
state  railroad,  postal,  telegraph,  and  telephone  systems.  It  was 
not  open  to  the  lower  ranks  of  officials,  the  clerks  or  the  laborers. 
In  1884  a  sharp  criticism  of  the  attitude  of  the  governmental 
Department  of  Transportation  towards  its  employees  was  pub- 
lished in  the  organ  of  the  association.  In  consequence  of  this 
mixture  of  the  union  in  the  internal  affairs  of  the  department,  the 
government  declared  the  union  to  be  a  political  association,  and 
consequently  subject  to  the  special  legislation  against  the  Social 
Democracy.  This  declaration  on  the  part  of  the  government  made 
necessary,  either  the  immediate  dissolution  of  the  union,  or  its 
reorganization  with  the  exclusion  of  the  elements  that  were 
objectionable  to  the  Department  of  Transportation.  The  union 
chose  the  latter  course.  In  1885  it  was  recognized  once  more  by 
the  department  as  a  lawful  association,  and  the  General  Director 
of  the  Bavarian  Transportation  Services  became  an  ordinary 
member  of  the  association.  The  latter  had  purchased  its  life, 
however,  by  surrendering  all  claims  to  become  anything  more  than 
a  social  club.  As  such  it  is  still  in  existence. 

No  other  attempt  was  made  to  organize  the  postal  and  tele- 
graph employees  until  1890.  Then  (June  6,  1890)  one  of  the  lower 
grades  of  postal  and  telegraph  employees  formed  an  association 
(Verband  deutscher  Post-  und  Telegraphen-Assistenten)1  to  repre- 
sent their  interests  in  the  service.  Its  purposes  were  declared  to 
be  the  assistance  of  widows  and  orphans  of  deceased  members, 
and  mutual  cooperation  in  helping  one  another  tide  over  misfor- 
tunes of  all  sorts,  particularly  in  case  of  accident,  illness,  or  death. 
In  1891  the  association  established  a  cooperative  store,  chiefly 
to  provide  the  members  with  uniforms  at  cost,  and  to  rescue  them 
from  the  toils  of  clothing-on-credit  dealers.  The  members  of  the 
union  who  joined  the  cooperative  store  were  required  to  pay  in 
3  marks  a  month  until  they  had  60  marks  to  their  credit.  All  pur- 
chases were  deducted  from  their  credits,  and  interest  was  allowed 
on  the  balance  at  4  per  cent.  This  branch  of  the  work  of  the  associ- 
ation was  greatly  appreciated  by  its  members,  and  together  with 

1  Subordinate  officials  in  the  larger  offices,  and  postmasters  in  offices  of  lesser 
importance. 


192  PUBLIC  OWNERSHIP  OF  TELEPHONES 

its  other  activities  formed  a  sufficient  basis  for  a  flourishing  asso- 
ciation. 

Had  this  not  been  the  case,  the  association  would  never  have 
survived  the  early  stress  of  open  hostility  on  the  part  of  Stephan, 
then  chief  of  the  imperial  postal  and  telegraph  service.  Great  as 
were  Stephan's  services  to  the  state,  his  employer,  in  building  up 
the  business  confided  to  his  care,  he  had  no  comprehension  of  the 
forces  underlying  the  labor  movement  which  had  accompanied 
the  progress  of  the  factory  system  of  industry  in  his  country,  and 
doggedly  adhered  to  the  current  notion  among  German  employers 
that  the  employer  must  be  absolute  and  unchallenged  master  in 
his  own  establishment.  He  did  not  need  to  wait  for  the  organized 
postal  and  telegraph  employees  to  show  a  disposition  to  interfere 
in  the  relations  between  their  chief  and  the  individual  wage-earner. 
It  was  enough  for  him  that  they  were  dissatisfied  with  the  condi- 
tions of  employment  which  the  government,  in  its  paternal  care 
for  its  servants,  had  provided  for  them,  and  were  seeking  to  supple- 
ment the  imperial  workmen's  insurance  by  private  undertakings 
of  their  own.  He  did  not  hesitate  to  show  his  displeasure,  proceed- 
ing at  once  to  apply  the  principle  of  the  old  Greek  tyrant  by  cut- 
ting off  the  heads,  metaphorically  speaking,  of  those  who  stood 
above  the  general  crowd.  In  fact,  it  was  partly  to  provide  employ- 
ment for  one  Funk,  who  had  been  particularly  active  in  the  for- 
mation of  the  association,  becoming  its  first  president,  and  who  had 
in  consequence  been  dismissed  from  the  service,  that  the  coop- 
erative store  was  established.  Funk  was  given  the  position  of 
manager.  Such  harsh  treatment  of  the  employees  raised  a  storm 
of  criticism  in  the  Reichstag.  The  result  was  that  to  the  period  of 
hostility  towards  the  employees'  association,  on  the  part  of  the 
chief  of  the  service,  there  succeeded  a  period  of  ungracious  toler- 
ance. 

This  lasted  until  1898.  By  that  time  the  membership  of  the 
association  had  increased  to  a  round  14,000,  that  is  to  say,  about 
40  %  of  the  total  number  of  employees  of  that  grade.  In  1898 
there  was  a  general  revision  of  wages  in  the  imperial  German  and 
royal  Prussian  governmental  services.  But  the  postal  and  tele- 
graph administration  did  not  propose  any  increase  for  the  class  of 


THE  LABOR  SITUATION  IN  GERMANY  193 

employees  which  composed  the  majority  of  the  association.  The 
latter  appealed  to  the  Reichstag,  when  the  postal  budget  came 
up  for  consideration,  and,  despite  the  protest  of  the  Secretary  of 
State  for  the  Postal  and  Telegraph  Service,  von  Podbielsky  (who 
succeeded  Stephan  at  the  latter's  death  in  1897),  secured  the  sanc- 
tion of  an  overwhelming  majority  for  their  request  for  higher  pay. 
This  success  on  the  part  of  the  organized  employees  was  enough 
to  convince  their  chief  that  matters  could  not  be  allowed  to-  go 
further,  if  he  would  maintain  his  mastery  over  the  service.  Ac- 
cordingly, a  year  later  he  summoned  several  of  the  leaders  of  the 
employees'  organization,  and  declared  to  them  that  their  union 
constituted  a  state  within  a  state,  so  to  speak,  which  was  incon- 
sistent with  the  existing  scheme  of  government.  It  attempted  to 
represent  the  special  interests  of  a  class  of  employees,  whereas 
it  was  not  proper  that  the  latter  should  feel  themselves  to  be  any- 
thing other  than  a  part  of  the  whole.  He,  their  chief,  not  the  union, 
would  represent  their  interests,  just  as  he  did  those  of  other  classes 
of  employees.  He  accordingly  demanded  that  the  union  should 
strike  from  its  constitution  that  part  of  the  statement  of  its  object 
which  was  inconsistent  with  an  unqualified  trust  in  him  as  their 
sole  representative  in  matters  concerning  their  terms  of  employ- 
ment,1 and  that  it  should  appoint  a  committee  which  would  be 

1  The  objects  of  the  Verband  Deutscher  Post-  und  Telegraphen-Assislenten  were 
declared  at  its  organization  in  1890  to  be:  — 

i.  To  provide  an  association  for  postal  clerks,  telegraph  operators,  letter  carriers, 
etc.,  which  should  rest  on  a  "lawful  foundation"  (i.  e.,  which  should  have  no  con- 
nection with  the  Social  Democracy  or  the  Social  Democratic  Trade  Unions) ; 

H.  To  promote  the  economic  interests  of  the  class  of  employees  for  which  it  was 
established; 

ni.  To  bring,'  however,  no  employee  in  conflict  with  his  duty; 

iv.  To  avoid  controversies  with  their  superiors  (membership  was  to  be  made  a 
recommendation,  not  a  reproach  to  the  employee) ; 

v.  To  defend,  however,  the  civil  rights  of  members,  even  against  encroachment 
by  superiors; 

vi.  To  promote  the  extension  of  the  organization; 

vn.  To  act  openly  in  all  matters; 

vra.  To  encourage  self-reliance  among  the  members,  and 

IX.  To  avoid  mixture  in  politics. 

It  was  clause  n  that  was  stricken  out  at  the  behest  of  the  Secretary  of  State  for 
the  Postal  and  Telegraph  Service.  Up  to  that  time  the  union  seems  to  have  adhered 
conscientiously  to  a  fair  interpretation  of  its  objects.  To  what  extent  it  departed 


IQ4  PUBLIC  OWNERSHIP  OF  TELEPHONES 

responsible  for  all  statements  published  in  their  organ,  the  German 
Postal  Gazette  (Die  Deutsche  Postzeitung).1  The  union  did  as  it 
was  bidden. 

At  the  same  time  the  imperial  postal  authorities  took  the  occa- 
sion to  assert  their  mastery  over  another  employees'  organization, 
which  had  been  recently  called  into  existence.  This  was  the 
Association  of  Under-officials  of  the  Postal  and  Telegraph  Service 
(Verband  der  Deutschen  Post-  und  Telegraphen-Unterbeamten) .  The 
under-omcials  were  inferior  in  the  economic  scale  to  the  members 
of  the  V.  D.  P.  T.  A.,  and  comprised  the  letter  carriers,  telegraph 
distributors,  etc.  Their  organization  was  founded  January  30, 
1898,  and  was  the  outgrowth  of  a  number  of  local  associations  of 
that  class  of  postal  and  telegraph  employees  in  the  larger  cities, 
which  had  been  established  for  purely  social  purposes.  Several 
of  the  more  solid  of  these  local  associations  maintained  mutual  life 
assurance  funds.  In  Berlin,  in  1895,  there  were  two  such  mutual 
benevolent  associations  with,  in  round  numbers,  10,000  and  9,000 
members  respectively.  An  attempt  to  organize  one  general  mutual 
life  assurance  fund  for  all  employees  of  that  class  throughout  the 
empire  was  frustrated  by  the  refusal  of  the  administration  to 
countenance  the  proposal.  Then  the  chairman  of  the  Letter  Car- 
riers' Mutual  Benevolent  Society  in  Berlin,  who  had  been  the 
author  of  the  former  scheme,  devised  a  new  scheme  for  an  amal- 
gamation of  the  existing  local  societies.  It  was  this  scheme  which 
ripened  into  the  Verband  der  Deutschen  Post-  und  Telegraphen- 
Unterbeamten. 


from  clause  v  by  acceding  to  the  demands  of  the  Secretary  of  State  will  be  dis- 
cussed in  another  place.  In  place  of  clause  n  was  substituted  the  statement  that 
the  object  of  the  association  was  the  promotion  of  good  fellowship  among  its  mem- 
bers (die  Pflege  der  Kameradschaft) . 

1  The  organ  of  the  association  was  established  in  1800  at  the  same  time  as  the 
association  itself.  It  had  served  as  the  mouthpiece  of  the  association  during  its 
agitation  in  1898  for  higher  pay.  The  editor  was  not  at  that  time  in  the  governmental 
service,  and  there  was  some  talk  on  the  part  of  the  opponents  of  the  organization 
of  employees  of  the  state  of  demanding  his  removal  and  the  substitution  of  a  man 
who  would  be  directly  under  the  control  of  the  government.  The  Secretary  of  State 
decided,  however,  that  it  would  be  sufficient  for  his  purpose  if  there  were  a  number 
of  employees  designated  by  the  association,  whom  he  could  hold  responsible  for  the 
conduct  of  the  editor  of  its  organ. 


THE  LABOR  SITUATION  IN  GERMANY  195 

The  success  of  the  scheme  had  been  greatly  promoted  by  the 
editors'  of  a  periodical  known  as  the  Deutsche  Postbote.  This 
periodical  was  established  in  1895,  by  one  Remmers,  who  had 
formerly  been  a  Postassistent,  and  active  in  the  formation  of  the 
Verband  Deutscher  Post-  und  Tekgraphen-Assistenten  in  1890.  He 
had  lost  his  position  in  consequence,  but  secured  employment  on 
the  staff  of  the  Postzeitung.  After  a  period  of  activity  on  that 
organ,  he  decided  to  found  a  special  periodical  for  the  under- 
officials,  and  speedily  built  up  a  circulation  of  20,000  copies  for  his 
paper.  This  paper  was  not  made  the  official  organ  of  the  Verband 
der  Deutschen  Post-  und  Tekgrapken-Unterbeamten,  but  was  used 
as  its  mouthpiece  for  official  notices.  At  the  same  time  the  paper 
undertook  to  champion  the  cause  of  higher  pay  for  the  under- 
officials,  and  committed  the  fault  which  the  Secretary  of  State 
afterwards  (February  4,  1899)  described  in  the  Reichstag  as  "  de- 
manding wages  for  the  government's  employees  which  it  was 
absolutely  impossible  to  pay."  Such  agitation  raised  a  spirit  of 
discontent  in  the  postal  and  telegraph  service  which  the  adminis- 
tration could  not  tolerate  and  elected  to  repress  by  persecution 
rather  than  to  conciliate  by  concession. 

All  under-officials  who  were  known  to  be  subscribers  to  the 
sheet  were  warned  to  discontinue  their  subscriptions,  and  those 
who  advertised  in  its  columns  to  renounce  their  support.  A  num- 
ber of  employees  were  dismissed  for  failure  to  heed  these  admoni- 
tions. The  circulation  of  the  sheet  suffered  a  rapid  decline.  At  the 
same  time  the  authorities  encouraged  the  publication  of  a  rival 
sheet,  which  would  not  assume  an  independent  position  towards 
themselves  (Die  Neue  Post).  Finally  (May  30,  1899)  the  Secre- 
tary of  State  issued  an  order,  declaring  that  whereas  mutual 
benevolent  associations  among  the  under-officials  may  under  some 
circumstances  be  for  the  good  of  the  service,  yet  "on  account  of 
the  difference  of  the  circumstances  in  the  various  postal  districts, 
and  in  consideration  of  the  size  of  the  imperial  postal  area,  the 
extension  of  such  associations  to  more  than  one  postal  district 
must  be  regarded  as  a  mistake."  At  the  same  time  it  was  ordered 
that  thereafter  only  members  of  the  employees'  associations  who 
were  still  in  the  government  service  might  be  elected  to  office  in 


196  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  associations.  By  these  two  measures  the  power  of  the  Verband 
der  Deutschen  Post-  und  Telegraphen-Unterbeamten  ever  to  become 
an  inconvenient  representative  of  the  economic  interests  of  the 
employees  was  effectively  destroyed. 

The  subsequent  history  of  the  relations  between  the  postal  and 
telegraph  employees  and  their  chief  shows  that  the  latter  has 
resolutely  adhered  to  his  determination  to  be  master  in  his  own 
establishment.  Every  year  at  the  discussion  of  the  postal  and 
telegraph  budget,  instances  are  cited  in  which  the  Secretary  of 
State  for  the  postal  and  telegraph  service  has  chastised  those 
among  his  employees  who  have  shown  a  disposition  to  challenge 
his  arbitrary  authority.  There  is  no  reason  for  supposing  that  the 
methods  of  the  German  postal  administration  for  maintaining  its 
authority  are  any  more  arbitrary,  despite  the  power  of  the  govern- 
ment with  which  its  chief  is  armed,  than  those  of  any  other  large 
employer  of  labor,  who  refuses  to  recognize  the  right  of  his  em- 
ployees to  substitute  collective  for  individual  action  in  the  con- 
clusion of  agreements  concerning  the  conditions  of  employment. 
In  fact  the  methods  of  the  former  are  probably  less  arbitrary, 
since  the  chief  of  a  great  public  business  undertaking,  though 
independent  of  political  pressure  in  Germany,  is  more  subject  to 
the  power  of  public  opinion  than  is  the  great  private  employer. 

An  example  from  recent  debates  in  the  Reichstag  on  the  budget 
will  illustrate  the  manner  in  which  the  postal  and  telegraph  admin- 
istration has  executed  its  policy.1  In  1907  a  member  of  the  Ver- 
band der  Deutschen  Post-  und  Telegraphen-Assistenten,  who  was 
also  a  member  of  the  committee  which  was  held  responsible  by 
the  administration  for  the  utterances  of  the  official  organ  of  the 
association,  was  fined  by  order  of  the  Secretary  of  State  because 
an  article  had  been  published  which  the  latter  considered  defam- 
atory to  himself.  The  Secretary  of  State,  Kraetke,  declared  in 
response  to  a  criticism  of  his  action  that  the  punishment  had  been 
meted  out,  not  because  the  article  had  attacked  him  personally, 
but  because  it  affronted  him  in  his  capacity  as  chief  of  the  service. 
He  could  not  let  go  unpunished  the  publication  of  such  an  article 

1  Die  zivette  Beratung  des  Etats  der  Reichs-  Post-  und  Telegraphen-Verwaltung. 
A.  P.  T.,  1908,  pp.  142  el  seq. 


THE  LABOR  SITUATION  IN  GERMANY  197 

in  a  periodical  which  was  read  by  34,000  of  his  employees  without 
impairing  the  discipline  of  the  service.  This  declaration  was  satis- 
factory to  the  majority  of  the  supporters  of  the  government.  To 
the  minority,  however,  it  seemed  questionable  if  an  accusation 
against  an  employee  for  publishing  defamatory  matter,  and  his 
conviction  and  punishment  without  any  trial  except  the  Star 
Chamber  process  in  the  private  office  of  the  person  bringing  the 
accusation,  could  be  a  proceeding  calculated  to  improve  the  spirit 
of  discipline  in  a  great  public  business  undertaking. 

At  the  same  time  Kraetke  was  criticized  for  his  continued  refusal 
to  permit  the  under-officials  to  organize  a  general  association.1 
His  reply  was  (i)  that  the  under-officials  in  the  different  postal 
districts  have  no  common  interests  which  justify  a  general  asso- 
ciation; (2)  that  they  have  not  the  intelligence  nor  experience  to 
conduct  properly  the  affairs  of  such  an  association;  and  (3)  that 
they  would  consequently  abuse  their  privilege,  if  they  had  it, 
without  promoting  their  own  interests  in  the  least.  This  position 
was  also  satisfactory  to  the  governmental  majority.  Again  it 
seemed  to  a  minority  that  a  Secretary  of  State  was  hardly  a  proper 
person  to  decide  whether  or  not  any  body  of  citizens  possess 
sufficient  intelligence  to  know  when  their  interests  require  the 
formation  of  an  association,  or  to  conduct  the  affairs  of  such  an 
association  after  it  shall  have  been  formed. 

At  that  time  another  general  revision  of  wages,  which  had  been 
made  necessary  by  the  general  rise  in  the  cost  of  living  during  the 
preceding  decade,  was  in  course  of  preparation.  The  officials  of 
the  class  described  as  Postdirektoren  and  Oberpostsekretdre  peti- 
tioned the  Secretary  of  State  to  grant  them  an  audience  at  which 
they  might  discuss  with  their  chief  their  claims  to  an  increase.2 
The  audience  was  granted ;  but,  when  it  appeared  in  the  course  of 
the  interview  that  these  officials  had  already  handed  a  copy 
of  their  claims  to  several  members  of  the  Reichstag  without  await- 
ing the  issue  of  their  conference  with  their  chief,  the  latter  ter- 
minated the  audience  at  once.  In  the  Reichstag  he  defended  his 

1  Die  zweiteBeratung  des  Etats  der  Reichs-  Post-undTelegraphen-  Verwaltung. 
A.  P.  T.,  1908,  p.  147. 
1  Ibid. 


198  PUBLIC  OWNERSHIP  OF  TELEPHONES 

course  in  the  statement  that,  if  he  granted  an  audience  to  a  group 
of  his  employees,  he  expected  them  to  show  sufficient  confidence  in 
his  good  will  to  await  the  issue  of  the  audience,  before  appealing  to 
the  Reichstag.  His  contention  that  his  employees  ought  to  have 
confidence  in  him  was  justifiable,  and  the  fact  that  they  did  not 
shows  that  something  was  wrong  in  his  attitude  towards  them. 

The  conviction  that  there  was  something  fundamentally  wrong 
with  his  theory  of  preserving  the  mastery  of  his  own  establish- 
ment is  strengthened  by  the  further  progress  of  the  general  revision 
of  wages.  It  had  been  known  for  some  time  that  the  adminis- 
tration recognized  the  need  for  such  a  revision  and  was  already 
busied  with  the  matter,  but  the  employees  were  becoming  impa- 
tient. In  1907,  the  skilled  workmen  and  laborers  in  the  combined 
services  formed  a  union  (the  Verband  Deutscher  Post-  und  Tele- 
graphen-Arbeiter  und  Handwerker)  in  order  to  press  their  demands 
for  an  improvement  of  the  conditions  of  employment.  The  labor- 
ers possessed  even  less  security  of  employment  than  did  the  clerks 
and  lower  grades  of  officials,  for  they  enjoyed  no  legal  status  at  all. 
The  various  grades  of  officials  and  under-officials  (including  letter- 
carriers  and  telegraph-operators)  obtain  their  positions  through 
competitive  examinations,  held  in  accordance  with  published  rules, 
and  retain  them  during  good  behavior,  by  virtue  of  the  law  pro- 
viding for  the  organization  of  the  imperial  postal  and  telegraph 
service.  The  laborers,  however,  at  this  time  were  employed  and 
discharged  according  to  the  fluctuations  in  the  demand  for  their 
services;  they  were  paid  wages  by  the  day  instead  of  by  the  month 
or  year,  and  had  no  assurance  of  equality  of  treatment  or  of  pro- 
tection against  arbitrary  dismissal.  The  skilled  workmen,  espe- 
cially, found  their  position  inferior  to  that  of  electricians  in  private 
employment.  Moreover  they  possessed  the  additional  disadvan- 
tage that  their  employer  enjoyed  an  absolute  monopoly  of  the 
kind  of  work  they  were  accustomed  to  doing,  and  they  could  not 
seek  another  employer  without  abandoning  their  particular  trade 
altogether.  Under  these  circumstances  they  formed  a  union  and 
demanded  the  publication  of  uniform  conditions  of  employment 
in  order  that  they  might  at  least  know  how  they  stood.  This  was 
done;  although,  as  Secretary  of  State  Kraetke  was  careful  to  ex- 


THE  LABOR  SITUATION  IN  GERMANY  199 

plain  in  the  Reichstag,  not  because  the  workmen  demanded  it.1 
The  establishment  of  uniform  conditions  of  employment  for  the 
laborers  and  skilled  workmen  had,  he  declared,  been  under  con- 
sideration for  a  long  time,  and  it  was  a  mere  coincidence  that  their 
actual  publication  occurred  so  shortly  after  the  organization  of 
the  Verband  Deutscher  Post-  und  Telegraphen-Arbeiter  und  Hand- 
werker. 

Meanwhile  the  various  grades  of  employees,  especially  the  lower 
grades  of  officials  and  the  under-officials,  were  still  being  kept  in 
ignorance  of  the  nature  of  the  alterations  in  the  conditions  of 
their  employment,  which  they  would  sooner  or  later  be  invited 
to  accept.  Soon  they  began  to  grow  impatient.  Such  a  general 
revision  of  wages  for  a  body  of  four  or  five  hundred  thousand 
employees  —  the  wages  of  the  Prussian  railway  employees  and 
the  imperial  postal  and  telegraph  employees  are  customarily 
revised  at  the  same  time  —  unquestionably  is  an  undertaking  that 
cannot  be  carried  out  in  a  day.  The  principle  on  which  the  remun- 
eration of  the  subordinate  employees  of  the  state  in  Germany  is 
based  is  that  each  class  of  employees  shall  receive  the  rate  of  wages 
customary  for  similar  grades  of  labor  in  the  locality  in  which  the 
employment  is  exercised.2  To  establish  and  graduate  accurately 
the  local  rates  of  wages  for  the  several  grades  of  labor  employed 
in  the  postal,  telegraph,  and  railroad  services,  is  obviously  a  task 
of  great  magnitude.  The  Under-Secretary  of  the  Imperial  Trea- 
sury stated  in  the  Reichstag  (February  14,  1908)  that  the  prepara- 
tions for  the  revision  had  been  under  way  for  a  year,  but  the  new 
schedules  were  not  yet  ready  to  be  submitted  to  the  Reichstag.* 
He  could  not  tell  when  they  would  be  ready.  Towards  the  end  of 
the  year  they  were  at  last  made  public.  The  increase  proved  to  be 
less  than  the  employees  had  been  led  to  hope,  and  during  the 
course  of  December,  1908,  a  number  of  mass  meetings  of  employees 
was  held  to  protest  against  the  inadequacy  of  the  readjustment 
of  their  conditions  of  employment  to  the  altered  cost  of  living.4 

1  Die  ziveite  Beratung  des  Etats  der  Reichs-  Post-  und  Telegraphen-Verwallung' 
A.  P.  T.,  1908,  pp.  153,  158. 

2  Ibid.,  p.  142. 

3  Ibid.,  p.  148. 

4  Soziale  Praxis,  1908,  xiii,  p.  334  (Dec.  24,  1908).  ' 


200  PUBLIC  OWNERSHIP  OF  TELEPHONES 

As  is  unavoidable  on  such  occasions,  passionate  speeches  were 
made.  The  pent-up  feelings  of  the  disappointed  employees,  which 
could  find  no  other  way  of  escape,  sought  a  vent  in  inflammatory 
harangues. 

Such  a  state  of  affairs  is  deplorable.  Nay  more,  such  a  state 
of  affairs  cannot  permanently  endure.  To  be  sure,  it  is  no  worse 
than  exists  continually  in  private  industry;  but  the  employees  in 
private  industry  are  free  to  strike.  A  strike  on  the  part  of  the 
several  hundred  thousand  employees  of  the  imperial  postal  and 
telegraph  service  and  the  Prussian  state  railways,  however,  would 
be  too  serious  a  matter.  It  cannot  be  regarded  as  a  normal 
mode  of  securing  attention  to  the  grievances  of  the  employed. 
Some  rearrangement  of  the  relations  of  master  and  servant  in 
business  undertakings  of  such  great  public  importance  must  be 
devised. 

The  result  of  the  events  of  1899  was  to  deprive  the  employees 
of  the  state  of  the  right  to  a  collective  will  concerning  the  condi- 
tions of  their  employment.  The  right  of  the  working  classes  in 
private  industry  to  organize  for  the  promotion  of  their  class  inter- 
ests was  denied  to  the  members  of  that  class  who  entered  the  ser- 
vice of  the  state.  The  chief  of  the  postal  and  telegraph  service 
maintained  the  doctrine  that  he  should  be  master  in  his  own  estab- 
lishment, and  that  he  should  deal  with  his  employees  in  matters 
concerning  the  conditions  of  employment  only  as  individuals.  In 
practice  this  doctrine  amounted  to  depriving  them  of  any  voice 
whatever  in  fixing  the  terms  of  the  labor  contract  under  which 
they  entered  the  service  of  the  state.  Except  in  so  far  as  they  could 
influence  the  Reichstag  through  some  party  which  might  be  in 
sympathy  with  their  reclamations,  they  were  forced  to  accept 
conditions  of  employment  imposed  upon  them  by  their  masters. 
There  was,  to  be  sure,  always  the  alternative  of  not  accepting 
employment  under  the  government  at  all.  Indeed  it  is  on  this 
ground,  namely,  that  no  one  is  compelled  to  enter  the  service  of 
the  state,  that  defenders  of  the  policy  of  the  postal  and  telegraph 
administration  justified  its  conduct.  The  argument  is  that  in 
businesses  of  such  great  public  importance,  the  general  welfare 
demands  the  subordination  of  the  interests  of  the  employee  to 


THE  LABOR  SITUATION  IN  GERMANY  20 1 

those  of  the  state,  and  that  the  adequate  protection  of  the  public 
interest  is  only  possible  where  the  will  of  the  employer  (that  is, 
of  his  representative,  the  Secretary  of  State)  is  absolute  and  un- 
challenged. 

The  first  part  of  this  argument  may  be  accepted.  Production 
is  carried  on  for  the  benefit  of  the  consumer,  not  of  the  producer. 
The  qualification  must  be  added,  however,  that  the  postal  and 
telegraph  service  possesses  no  peculiar  attributes,  regarded  from 
the  standpoint  of  the  consumers,  that  warrants  them  in  treating 
it  differently  from  any  other  branch  of  production.  The  business 
of  transporting  intelligence  from  place  to  place  by  post  or  tele- 
graph, at  least  in  times  of  peace,  is  not  so  nearly  indispensable 
as  is,  for  example,  the  business  of  raising  foodstuffs.  A  strike  of 
postal  or  telegraph  employees  would  be  temporarily  more  incon- 
venient, but  would  not  produce  as  much  lasting  damage  as  would 
result  from  an  agricultural  laborers'  strike  at  a  critical  moment 
of  the  season.  The  conception  that  the  postal  and  telegraph  ser- 
vice in  time  of  peace  is  one  of  exceptional  importance  is  without 
foundation  in  fact,  and  probably  arose  from  the  circumstance  that 
it  happens  to  be  one  which  easily  lends  itself  to  conduct  by  the 
government,  and  in  most  countries  is  conducted  by  the  govern- 
ment. This  circumstance  alone,  however,  affords  no  justification 
of  a  different  relation  between  employer  and  employee  from 
what  would  be  proper  under  similar  conditions  in  private  em- 
ployment. 

To  return  to  the  main  argument,  clearly  the  second  statement 
does  not  follow  from  the  first.  The  condition  of  production  is  that 
the  producer  shall  be  assured  a  fair  share  in  the  enjoyment  of  the 
collective  output  of  consumable  goods.  Unless  some  means  be 
devised  for  guaranteeing  to  each  set  of  producers  a  satisfactory 
procedure  for  determining  what  is  its  fair  share,  production  will 
not  be  carried  on,  and  the  community  of  consumers  will  suffer  the 
consequences  of  its  own  incompetence.  The  history  of  the  German 
postal  and  telegraph  service  shows  that  when  production  is  organ- 
ized on  such  a  gigantic  scale  as  is  the  case  in  that  industry,  the 
method  of  determining  the  remuneration  of  the  rank  and  file  of  the 
industrial  army  by  an  individual  contract  between  the  captain  of 


202  PUBLIC  OWNERSHIP  OF  TELEPHONES 

industry  and  each  private  wage-earner  in  his  establishment  must 
break  down.  It  cannot  be  maintained.  He  who  is  able  to  read  the 
signs  of  the  times  cannot  fail  to  see  that  the  rank  and  file  will  not 
tolerate  it  indefinitely. 

The  German  government  is  not  among  those  who  are  unable  to 
read  the  signs  of  the  times.  In  this  same  year  (1908)  it  introduced 
into  the  Reichstag  a  bill  to  provide  for  the  organization  of  Cham- 
bers of  Labor  (Arbeitskammern) .  The  purpose  of  the  government 
was  to  force  employers  and  employed  in  each  important  branch  of 
industry  to  choose  representatives,  equal  in  number,  who  should 
meet  together  at  regular  intervals,  to  discuss  all  matters  of  mutual 
interest.  Chambers  of  Labor  were  intended  to  represent  all  the 
labor  and  all  the  capital  employed  in  each  important  industry, 
and  not  merely  organized  labor  and  organized  capital.  In  short 
the  government  proposed  to  create  an  improved  mechanism  for 
assigning  to  each  class  of  producers  its  fair  share  in  the  collective 
output  of  consumable  goods.  The  essence  of  that  mechanism  was 
the  requirement  that  the  expression  of  the  collective  will  on  the 
part  of  employers  and  of  wage-earners  in  matters  of  mutual  con- 
cern should  be  compulsory.  The  hoped-for  result  clearly  is  the 
promotion  of  collective  bargaining. 

The  government,  however,  did  not  propose  to  extend  the  bene- 
fits of  its  scheme  to  its  own  employees.1  So  far  had  its  declared 
purpose  of  1890  to  become  a  model  employer  been  forgotten  since 
its  renunciation  in  1896,  that  it  could  now  coolly  propose  to  accept 
the  opposite  role.  There  was  no  excuse  for  this.  The  means  of 
adapting  the  same  principle  to  the  public  business  undertakings 
that  it  now  proposed  to  impose  upon  the  private  had  been  repeat- 
edly brought  to  the  attention  of  the  public  authorities.  Thus  it  was 
proposed  by  a  member  of  the  commission  on  the  budget  in  1908 
that  the  Secretary  of  State  should  permit  the  postal  and  telegraph 
employees  to  designate  several  of  their  number  who  should  consti- 
tute a  permanent  intermediary  between  the  general  body  of  em- 
ployees and  their  chief.2  Questions  which  might  arise  concerning 
the  conditions  of  employment  of  any  class  of  employees  should 

1  Soziale  Praxis,  1908,  xii,  p.  553  (Feb.  1908). 

2  Ibid.,  p.  573.   Art.  "  Vereinsrecht,  Beamtenausschiisse  und  Postverwaltung." 


THE  LABOR  SITUATION  IN  GERMANY  203 

be  brought  to  the  attention  of  the  Secretary  by  this  representative 
board  or  Ausschuss.  Such  matters  should  be  acted  on  promptly, 
and  if  decided  in  a  sense  unfavorable  to  the  employees,  the  reasons 
for  the  decision  should  be  given  fully  and  frankly.  Only  after  such 
a  reply  had  been  received  by  the  employees  should  it  be  permissible 
for  them  to  appeal  to  the  Reichstag.  It  was  urged  that  such  a 
practice  would  conciliate  where  the  present  practice  only  irritated, 
and  would  prevent  much  controversy  from  ever  arising  at*  all.1 
The  Secretary  of  State,  however,  took  no  heed  of  the  suggestion, 
and  the  governmental  majority  did  not  press  it. 

The  success  of  the  efforts  of  the  imperial  postal  and  telegraph 
authorities  to  maintain  their  mastery  in  the  undertakings  confided 
to  their  care  and  to  prevent  the  expression  of  a  collective  will  on 
the  part  of  their  employees  would  not  have  been  possible  with- 
out the  support  of  the  Reichstag.  It  may  contribute  to  the  ex- 
planation of  the  relations  that  have  been  maintained  between 
the  chief  of  the  postal  and  telegraph  service  and  his  subordinates 
to  examine  the  other  aspect  of  the  development  of  class  conscious- 
ness among  the  German  working-classes  —  the  political  movement. 

1  A  representative  board  of  this  nature  was  created  in  Wurtemberg  in  1906. 
Verwaltungsbericht  der  Wiirttemberg'schen  Verkehrsanstdten,  1906,  p.  78.  The  board 
created  in  Wurtemberg,  however,  was  intended  to  represent  only  the  laborers,  in  the 
narrower  sense  of  the  term.  Somewhat  similar  boards  were  created  in  the  imperial 
postal  and  telegraph  service  by  the  rules  for  the  regulation  of  the  conditions  of  employ- 
ment of  the  laborers  and  skilled  workmen,  to  which  reference  has  already  been  made. 
These  boards,  which  went  into  operation  on  the  first  of  April,  1908,  were  erected,  one 
in  each  workshop  or  locality  where  not  less  than  fifty  laborers  or  workmen  were  em- 
ployed in  connection  with  telegraph  or  telephone  construction.  These  boards  were  to 
form  the  vehicle  for  conveying  all  complaints  to  the  local  superintendent,  for  making 
proposals  concerning  the  welfare  of  the  local  employees  subject  to  their  jurisdic- 
tion, and  to  conciliate  disputes  among  the  workmen  themselves.  They  were  to  con- 
sist of  from  five  to  ten  members,  at  least  twenty-five  years  of  age  and  of  at  least 
three  years'  service,  elected  by  all  the  workmen,  at  least  twenty-one  years  of  age 
and  of  at  least  one  year's  service.  The  members  of  these  boards  were  to  hold  office 
for  three  years,  and  they  were  to  be  eligible  for  reelection.  Meetings  were  to  be  called  at 
need,  but  at  least  twice  a  year,  and  were  to  be  held  during  working  hours.  There  should 
be  no  deduction  of  wages  for  such  interruptions  of  work.  The  chairman  should  be  an 
officer  delegated  by  the  local  superintendent.  (Soziale  Praxis,  1908,  xii,p.  553.)  These 
boards,  however,  were  of  local,  not  general,  interest,  and  applied  only  to  laborers  and 
electrical  workmen,  not  to  the  class  of  under-oflBcials.  The  organization  of  these  local 
workingmen's  boards  is,  at  most,  an  entering  wedge.  Their  importance  will  depend 
on  the  spirit  in  which  they  are  administered. 


204  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  Social  Democracy  avowedly  aims  at  a  transformation  of  Ger- 
man political  as  well  as  economic  institutions.  For  this  reason  it  has 
always  been  held  by  those  in  authority  that  open  allegiance  to  the 
Social  Democracy  was  irreconcilable  with  the  service  of  the  state 
in  any  position  of  honor  or  profit.  Thus  von  Podbielski  declared 
in  the  Reichstag  in  1898,  during  the  course  of  the  debate  on  the 
postal  budget,  that  he  should  consider  any  participation,  direct 
or  indirect,  by  an  employee  in  his  department  in  the  agitation  of 
the  Social  Democrats  as  a  violation  of  their  oath  of  fidelity  to  the 
state,  and  should  dismiss  at  once  any  employee  who  should  be 
guilty  of  any  act  of  that  sort.1  More  recently  Prince  Billow,  then 
Chancellor  of  the  Empire,  declared  in  the  Prussian  Landtag: 
"No  official  of  the  empire  may  avow  adherence  to  the  Social 
Democratic  party."  z  In  accordance  with  the  law  of  self-pre- 
servation, the  classes  of  society  that  control  the  Prussian  and 
the  imperial  governments  unquestionably  have  a  right  to  enforce 
this  rule,  if  they  can,  just  as  the  Social  Democrats  have  the  right 
to  rebel,  if  they  dare.  It  cannot  be  justified  on  any  other  ground. 
For  our  present  purpose  we  are  interested  chiefly  in  the  manner  of 
its  enforcement. 

The  ballot  in  imperial  elections  is  secret.  Consequently  it  is 
not  possible  to  prevent  a  government  official  from  voting  for 
Social  Democratic  candidates.3  But  the  employee  of  the  state 

1  Cf.  Kammerer:  La  fondion  publique  en  Allemagne,  p.  188. 

2  "Ein  Beamter  darf  sich  nicht  der  Sozialdemokratie  bekennen."  House  of  Dele- 
gates, January  19,  1909. 

8  It  is  generally  understood  that  in  fact  the  workmen  and  lower  grades  of  officials 
in  the  service  of  the  imperial  and  Prussian  governments  generally  do  vote  with  the 
Social  Democratic  party.  But  none  of  the  employees'  associations  lends  any  official 
countenance  to  the  Social  Democracy  or  maintains  relations  with  the  socialistic 
trade-unions.  Even  the  employees'  associations  in  the  South  German  states,  where  the 
government  is  less  stringent  in  its  censorship  of  its  dependents,  are  careful  to  avoid 
alliances  of  any  sort  with  the  socialistic  trade-unions.  Thus  such  associations  as  the 
Deutsche  Eisenbahnhandwerker  (35,091  members),  the  Bayrisches  Post-personal  (2,439 
members),  the  Badische  Eisenbahner  (8,700  members),  the  Wurltembergische  Eisen- 
bahner  (7,345  members),  and  the  Wiirltembergisches  Post-personal  (2,557  members) 
are  reported  in  the  fourth  International  Report  of  the  Trade  Union  Movement,  1906 
(Berlin,  1908),  p,  101,  as  having  no  affiliations  either  with  one  another  or  with  any 
other  trade-unions,  although  professing  a  so-called  "Christian"  character.  The  Bay- 
rische  Eisenbahner  (22,155  members),  on  the  other  hand,  was  openly  affiliated  with 
the  main  body  of  Christian  (that  is,  Catholic)  trade-unions. 


THE  LABOR  SITUATION  IN  GERMANY  205 

can  be  prevented,  not  only  from  playing  a  leading  part  in  the 
Social  Democratic  party,  but  also  from  lending  aid  or  comfort 
in  any  indirect  way  to  the  "subverters  of  the  state." 

Two  instances  may  be  cited.  In  the  city  of  Magdeburg  in  1903, 
there  was  a  cooperative  store,  conducted  under  the  title  of  Kon- 
sumverein  Neustadt-Magdeburg,  the  management  of  which  was  in 
the  hands  of  Social  Democrats.  The  local  postal  authorities  for- 
bade the  postal  and  telegraph  employees  to  become  members  ofthe 
society.1  The  second  instance  occurred  in  1907.  A  physician 
in  Wiesbaden,  who  held  the  appointment  of  official  medical  exam- 
iner in  accordance  with  the  workmen's  insurance  legislation,  voted 
for  a  Social  Democrat  at  the  elections  to  the  Reichstag.  He  in- 
discreetly told  a  friend  in  a  public  place  what  he  had  done.  His 
words  were  overheard  and  eventually  reached  the  ears  of  the 
Secretary  of  State.  The  latter  at  once  notified  the  physician  that 
unless  he  resigned  his  appointment  he  would  be  dismissed.  He  re- 
fused to  resign  and  consequently  was  dismissed.  In  this  case  the 
offending  physician  was  not  himself  a  Social  Democrat,  but  voted 
for  the  Social  Democratic  candidate  as  the  lesser  evil,  from  his 
point  of  view,  of  the  two  candidates  standing  for  the  election. 
When  an  explanation  was  demanded  in  the  Reichstag  the  Secre- 
tary of  State  replied  that  he  had  dismissed  the  physician,  not  be- 
cause he  voted  for  a  Social  Democrat,  but  because  he  let  it  be 
known  that  he  had  done  so.  Dismissal  was,  in  the  Secretary's 
opinion,  necessary  in  order  that  the  postal  and  telegraph  employees 
might  have  no  cause  for  uncertainty  as  to  the  precise  attitude 
which  was  expected  of  them  by  their  chief  towards  the  Social 
Democracy.2 

The  opposition  on  the  part  of  the  German  imperial  government 
to  the  organization  of  its  employees  for  economic  purposes  is  a 
corollary  of  its  policy  towards  the  Social  Democracy.  The  govern- 
ment cannot,  or  will  not,  distinguish  between  its  functions  of 
policeman  and  of  business  man.  Since  as  "policeman"  it  is  com- 
missioned by  the  ruling  classes  to  put  down  any  political  movement 

1  Stenographischer  Bericht  der  Vcrhandlungcn  der  Reichstagcs,    May    n,    1904. 
Speech  of  Abgeordneter  von  Gerlach. 
*  Ibid.,  Feb.  15,  1908.  Declaration  of  Secretary  of  State  Kraetke. 


206  PUBLIC  OWNERSHIP  OF  TELEPHONES 

that  threatens  the  foundations  of  their  power,  likewise  as  business 
man  it  frowns  upon  any  economic  movement  that  savors  of  the 
same  tendency.  So  long  as  the  powers  that  be  remain  unalterably 
opposed  to  the  democratization  of  politics,  they  cannot  be  expected 
to  consent  to  abandon  their  autocratic  power  over  the  industrial 
undertakings  of  the  state.  The  recognition  of  the  right  of  govern- 
mental employees  to  substitute  collective  for  individual  bargaining 
with  the  captains  of  governmental  industry  would  be  an  indirect 
concession  to  the  principles  of  the  Social  Democracy.  Whatever 
may  be  the  attitude  of  the  government  towards  collective  bar- 
gaining in  private  industry,  it  cannot  consistently  encourage  the 
growth  of  a  collective  consciousness  among  the  members  of 
the  working-classes  in  the  employ  of  the  state. 

At  present  the  German  citizen  who  accepts  employment  in  the 
imperial  postal  service,  except  as  an  unskilled  laborer,  enjoys 
tolerable  certainty  that,  during  good  behavior,  as  the  term  is 
understood  by  his  chief,  he  will  be  able  to  earn  a  livelihood,  and 
to  retire,  with  a  modest  allowance  for  his  old  age,  when  his 
working  days  are  over.  But  in  order  to  obtain  this  security  for  the 
future,  he  must  surrender  not  only  his  right  to  associate  with  his 
fellows  for  the  purpose  of  mutual  assistance  in  promoting  their 
common  interests  as  wage-earners,  but  also  his  liberty  to  exercise 
the  fundamental  privileges  of  citizenship,  the  liberty  of  express- 
ing his  views  on  political  questions,  and  of  playing  a  part  in  the 
politics  of  his  country. 

The  price  of  this  sacrifice,  the  right  to  work,  as  it  were,  is  very 
attractive  to  the  man  who  must  sell  his  labor  from  day  to  day  in 
order  to  live.  Under  the  factory  system  of  production,  the  wage- 
earner  in  private  employment  feels  a  certain  helplessness  when  he 
reflects  that  his  bread  and  butter  depend  on  circumstances  which 
are  beyond  his  control,  that  is,  on  the  prudence  and  good  fortune 
of  his  employer.  It  is  to  escape  from  this  feeling  of  dependency  that 
he  strives  through  organization  to  acquire  a  voice  in  the  manage- 
ment of  his  employer's  affairs,  for  this  is  what  trade-unionism 
means  from  the  standpoint  of  the  employer,  of  the  man  who  wishes 
to  be  master  of  his  own  establishment.  It  is  because  public  owner- 
ship offers  the  wage-earner  at  least  the  possibility  of  acquiring  a 


THE  LABOR  SITUATION  IN  GERMANY  207 

greater  voice  in  the  determination  of  his  own  destiny  than  he  can 
ever  hope  to  acquire  in  privately  owned  industry,  that  wage-earners 
as  a  class  strive  to  extend  the  scope  of  the  business  enterprise  of 
the  state.  That  the  powers  now  in  control  of  the  German  imperial 
government  can  permanently  deprive  the  citizens  in  its  employ  of 
any  portion  of  their  ordinary  rights  of  citizenship  is  in  the  light 
of  history  incredible.1 

Hitherto,  as  a  possible  agent  in  the  redistribution  of  weajth, 
public  ownership  of  business  undertakings,  such  as  the  telephone, 
has  received  little  consideration  by  the  German  imperial  authorities. 
The  effect  of  public  ownership  has  been  to  remove  from  the  realm 
of  private  business  enterprise  a  possible  source  of  business  profits; 
but  from  the  point  of  view  of  the  public  authorities  it  has  simply 
altered  the  mode  in  which  the  public  revenue  from  the  telephone 
business  has  been  collected.  Instead  of  exacting  a  share  of  the 
profits  of  a  private  business,  the  government  has  taken  the  business 
into  its  own  hands  and  enjoys  all  the  profits.  From  the  point  of 
view  of  those  who  gain  a  livelihood  by  employment  in  the  telephone 
business,  public  ownership  has  brought  a  change  of  masters,  but 
as  yet  no  important  change  in  the  relations  between  master  and 
servant. 

1  The  strength  of  the  opposition  on  the  part  of  the  German  government  in  the 
past  to  everything  that  savored  of  interference  with  their  method  of  dominating 
their  employees  will  some  time  appear  equally  incredible.  Only  ten  years  ago,  a 
thorough  examination  of  the  conditions  of  employment  and  wages  of  the  officials 
and  laborers  in  the  service  of  the  several  German  state  railroads  was  planned  by 
the  Verein  fur  Sozialpolitik,  but  had  to  be  abandoned,  because  the  support  of  the 
Prussian  railroad  authorities  was  refused.  Nor  were  any  reasons  given  for  their 
refusal.  The  Bavarian,  Saxon,  and  Badenese  authorities  followed  the  example  of  the 
Prussian,  partly  with  and  partly  without  explanation.  Cf.  Baron  von  Berlepsch: 
Introduction  to  vol.  xcix  of  the  Schriften  des  Vereins  fur  Sozialpolilik.  The  study 
in  this  volume  by  W.  Zimmermann:  Zur  sozialen  Lage  der  Eisenbahner  in  Preussen 
(1902),  is  nevertheless  the  most  valuable  contribution  we  possess  to  the  literature 
dealing  with  the  economic  condition  of  the  employees  of  the  state  in  Prussia.  For 
a  detailed  account  of  recent  developments  in  the  labor  situation  in  the  German 
and  Prussian  services,  cf.  Emil  Lederer,  "Die  Bewegung  der  offentlichen  Beam- 
ten,"  Archiv  fur  Sozialwissenschaft  und  Sozialpolitik,  1910,  pp.  660-709. 


PART  II 

PUBLIC    OWNERSHIP   OF   TELEPHONES   IN   SWITZ- 
ERLAND 


CHAPTER  XII 

THE  DEVELOPMENT  OF  THE  SWISS  GOVERNMENTAL  TELEPHONE 

SYSTEM 

IN  Switzerland  the  attitude  of  the  government  toward^  the 
telephone  was  at  first  undecided.  The  law  of  October  23,  1851, 
had  established  the  telegraph  as  a  part  of  the  governmental  postal 
monopoly,  and  the  postal  authorities l  consequently  felt  under 
obligations  to  take  cognizance  of  any  improvements  that  might 
be  made  in  the  means  of  telegraphic  communication.  As  soon  as 
the  telephone  was  brought  to  the  notice  of  the  Federal  Council, 
an  ordinance  was  issued,  February  18,  1878,  declaring  that  the 
new  invention  fell  within  the  scope  of  the  public  telegraph  mo- 
nopoly, and  steps  were  at  once  taken  with  a  view  to  facilitating 
its  introduction  into  Switzerland.  At  that  time  there  was  no 
public  exchange  system  in  operation  anywhere  in  the  world,  and 
the  telegraph  authorities  anticipated  no  other  use  for  the  tele- 
phone than  its  employment  as  a  substitute  for  speaking  tubes, 
or  signal  systems  of  various  sorts,  in  private  establishments. 
With  the  purpose  of  removing  as  far  as  possible  the  restrictions 
on  the  creation  of  such  private  telephone  facilities  which  resulted 
from  the  fact  of  the  governmental  telegraph  monopoly,  the  same 
ordinance  that  brought  the  telephone  within  the  telegraph  monop- 
oly provided  for  the  granting  of  special  licenses  to  persons  who 
should  desire  to  use  the  telephone  for  private  purposes.2 

The  opinion  of  the  Bundesrat  concerning  the  nature  of  Bell's 
invention  was  not  permitted  to  go  unchallenged.  On  May  30, 
1878,  a  resident  of  Zurich  complained  that  the  ordinance  of  the 
Bundesrat  constituted  an  infringement  of  the  Swiss  citizen's 

1  The  postal  and  telegraph  monopoly  is  administered  by  the  Bundesrat  or  Federal 
Council,  and  together  with  the  railways  constitutes  one  of  the  seven  departments 
into  which  the  work  of  the  council  is  divided. 

2  P.  Reinhard:  Die  Entwickelung  des  Telephonwesens  der  Sckweiz  und  die  volks- 
wirtschaftliche  Bedeutung  der  sckwe izerischen  Telephongesetzgebung,  Berne,  1898,  p.  17. 


212  PUBLIC  OWNERSHIP  OF  TELEPHONES 

liberty  to  engage  in  any  lawful  profession  or  trade.  The  matter 
was  carried  into  the  Federal  Assembly  at  its  next  session,  where, 
after  a  thorough  debate  (December,  1878),  the  representatives 
of  the  people  sustained  the  interpretation  of  the  Bundesrat  of  the 
extent  of  the  public  telegraph  monopoly,  and  declared  that  the 
telegraph  authorities  at  their  discretion  might  reserve  the  exploita- 
tion of  the  new  invention  to  the  government,  or  grant  limited  con- 
cessions to  private  persons,  provided  they  took  proper  precautions 
to  ensure  the  legal  maintenance  of  the  public  telegraph  monopoly. 

Still  the  telegraph  authorities  could  not  definitely  make  up  their 
minds  as  to  the  proper  course  for  them  to  pursue.  The  course  of 
events  in  America  soon  indicated  that  the  telephone  was  capable 
of  rendering  a  more  general  service  than  had  been  at  first  sup- 
posed; that  it  was,  in  short,  an  invention  with  a  great  future  before 
it.  However,  the  American  experience  was  not  a  sufficient  guide 
for  the  Swiss  telegraph  administration,  because  in  America 
the  telegraphs  were  not  owned  by  the  government.  In  Europe, 
where  the  telegraphs  were  everywhere  in  the  hands  of  the  public 
authorities,  none  but  the  Germans  had  introduced  the  telephone 
into  the  telegraph  undertaking.  So  long  as  there  was  no  demand 
in  Switzerland  for  the  establishment  of  telephone  exchanges,  the 
government's  indecision  had  no  serious  consequence.  But  by  1880 
private  enterprise  had  become  convinced  that  the  local  exchange 
business  would  prove  a  paying  venture.  A  group  of  Zurich  business 
men  became  importunate,  and  on  July  24,  1880,  a  concession  was 
granted  for  the  establishment  of  an  exchange  in  that  city.1 

This  concession  bestowed  the  right  to  conduct  exchange  opera- 
tions in  Zurich  for  twenty  years.  It  prohibited  the  concession- 
naires  from  charging  more  than  should  be  charged  on  telephone 
exchange  systems  that  should  thereafter  be  established  by  the 
government  itself,  provided  for  the  division  of  net  profits  in  excess 
of  8  %  between  the  concessionnaires  and  the  telephone  subscribers, 
and  stipulated  that  the  government  should  have  the  option  of  pur- 
chasing the  plant  at  a  fair  valuation  at  the  end  of  the  concession. 
The  further  regulation  of  the  undertaking  was  intrusted  to  the 
city  of  Zurich.  Shortly  afterwards  an  application  by  the  original 

1  Geschaflsberickt  der  Telegraphenverwaltung  pro  1880.   Bundesblatt,  1881,  ii,  373. 


DEVELOPMENT  OF   THE  SWISS  SYSTEM  213 

concessionnaires  for  permission  to  transfer  their  rights  to  a  stock 
company  gave  the  government  an  opportunity  to  secure  important 
alterations  in  the  terms  of  the  concession.  The  most  significant  of 
these  was  the  reduction  of  its  duration  to  a  period  of  five  years. 

In  fact,  the  confidence  in  the  future  of  telephony  displayed  by 
the  Zurich  promoters  had  determined  the  telegraph  authorities  in 
regard  to  their  own  course  of  action.  They  at  once  resolved  to 
grant  no  more  concessions,  but  to  establish  on  their  own  responsi- 
bility all  other  urban  exchange  systems  that  should  be  demanded. 
They  set  to  work  at  once  to  carry  out  their  new  resolution.  Gov- 
ernmental exchanges  were  opened  to  the  public  in  Basel  and  Berne 
during  the  course  of  1881,  and  in  the  following  year  in  Geneva, 
Lausanne  and  Winterthur.  Thereafter  the  construction  of  exchange 
systems  by  governmental  enterprise  went  forward  rapidly.  There 
were  fourteen  in  operation  at  the  end  of  1883,  and  twice  as  many 
a  year  later.1 

Another  cause  contributed  to  the  resolution  of  the  administra- 
tion to  develop  the  telephone  business  as  a  direct  state  undertaking. 
This  was  the  recognition  that  the  telephone  was  destined  to  become 
an  important  factor  in  the  further  extension  of  the  telegraph  sys- 
tem to  the  rural  population.  This  was  a  work  which  the  Swiss 
telegraph  administration  had  always  had  near  to  its  heart.  Indeed, 
the  creation  of  facilities  for  more  rapid  diffusion  of  intelligence 
among  the  isolated  rural  communities  had  been  a  leading  pur- 
pose in  the  original  establishment  of  the  state  telegraphs.  By 
1880  the  economy  of  the  use  of  the  telephone  as  an  auxiliary  to  the 
telegraph  in  rural  districts  had  been  clearly  demonstrated.  Hence 
the  Federal  Council  resolved  to  modify  the  conditions  for  the  estab- 
lishment of  rural  telegraph  offices  with  a  view  to  encouraging 
the  use  of  the  telephone  as  a  substitute  for  the  telegraph.  It  was 
provided  that  places  which  were  not  yet  supplied  with  a  telegraph 
office  might  be  connected  with  the  nearest  telegraph  office  and  so 
with  the  general  telegraph  system  of  the  country  by  telephone. 
Villages  which  should  desire  such  a  connection  were  required 
to  contribute  a  sum  towards  the  expenses  of  construction  equal  to 
about  one  half  of  the  total  cost,  but  in  no  case  less  than  100 

1  Geschaftsbericht,  passim. 


214  PUBLIC  OWNERSHIP  OF  TELEPHONES 

francs,  and  to  provide  quarters  and  attendance  for  the  office.  The 
village  authorities  were  allowed  to  recover  their  advances  by 
charging  a  surtax  of  not  more  than  25  centimes  on  all  messages 
originating  at  the  village  office.  Thus  the  financial  burdens  im- 
posed on  the  local  authorities  by  this  revised  ordinance  were 
very  much  lighter  than  those  contained  in  the  original  ordinance 
of  I857.1  This  policy  of  local  initiative  and  local  contributions 
towards  the  cost  of  construction  had  helped  to  make  the  Swiss 
telegraph  system  the  most  extensive  and  the  most  largely  patron- 
ized in  the  world.  Its  application  to  the  telephone  business  by  the 
telegraph  administration  in  1880  was  confidently  expected  to  en- 
able the  Swiss  service  to  maintain  its  superiority. 

Once  the  beginning  had  been  made,  the  further  development  of 
telephone  service  was  rapid.  The  establishment  of  public  call- 
offices  in  connection  with  local  exchange  systems  was  provided 
for  by  an  ordinance  of  the  following  year.2  The  first  inter-urban 
long-distance  line  was  erected  early  in  1882  to  connect  the  newly 
established  exchange  system  in  Winterthur  with  that  in  Zurich. 
With  the  rapid  construction  of  additional  exchanges,  which  was 
begun  in  that  year,  went  a  corresponding  extension  of  the  inter- 
urban  toll  system.  At  the  end  of  1885  there  were  39  inter-urban 
toll  lines  in  operation,  as  compared  with  23  in  Germany  at  the 
same  period.3  By  the  expiration  of  the  franchise  of  the  Zurich 
telephone  system  at  the  end  of  1885  there  was  no  longer  any  doubt 
in  Switzerland  concerning  the  future  status  of  the  telephone  in- 
dustry. Both  the  government  and  the  people  were  agreed  that  it 
should  be  a  governmental  undertaking.  The  advantage  of  the  re- 
purchase of  the  private  system  at  Zurich  was  universally  recog- 
nized, and  the  necessary  appropriation  was  made  by  the  Federal 
Assembly  without  opposition.4  Since  January  i,  1886,  the  govern- 
ment has  owned  and  operated  all  the  telephones  in  Switzerland. 

1  Verordnung  tiber  die  Einrichtung   'ojfentlicher  Tehphonstationen  vom  29.  Nov. 
1880.  Bundesblatt,  1880,  iv,  487.  The  previous  regulations  were  established  by 
ordinance  of  Aug.  6,  1857.   Cf.  Introductory  chapter,  pp.  13,  14. 

2  Verordnung  vom  n.  Okt.,  1881,  ilber  die  Einrichtung  b'/entlicherSprechstationen 
in  St&dten  mil  staatlichem  Telephonnetz. 

•  A.  P.  T.,  1887,  p.  676. 

4  Botschaft  des  Bundesrates  an  die  Bundesversammlung  betre/end  den  Riickkauf 


DEVELOPMENT  OF  THE  SWISS  SYSTEM          215 

At  that  time  the  Swiss  telephone  system  was  the  most  extended 
-  measured  on  the  basis  of  population  —  in  Europe.  Compared  . 
with  the  telephone  system  of  its  great  northern  neighbor,  Ger- 
many, the  Swiss  system  was  not  only  more  widely  used  in  the 
commercial  centers,  but  exchanges  had  been  established  in  much 
smaller  places  than  was  the  case  at  that  time  in  Germany.  The 
service  was  also  cheaper.  The  Swiss  flat  rate  had  been  fixed  at  150 
francs,  or  scarcely  four  fifths  of  the  German  rate,  and  the  Swiss 
inter-urban  rate,  20  centimes,  wa?  much  cheaper  than  the  Ger- 
man. But  it  should  be  added  that  the  inter-urban  messages,  for 
the  most  part,  traveled  shorter  distances  than  in  Germany. 

Compared  with  the  private  system  which  had  been  maintained 
in  Zurich,1  the  government  system  was  operated  at  about  the  same 
level  of  rates,  but  adjusted  on  a  more  reasonable  basis.  The  Zurich 
Telephone  Company  had  offered  their  subscribers  no  other  choice 
than  flat  rates  for  an  unlimited  service,  as  the  government  did  also, 
but  the  company  fixed  its  annual  charges  at  100,  150,  200,  and 
250  francs  per  telephone,  according  to  a  schedule  the  basis  of  which 
appears  to  have  been  purely  arbitrary.  The  average  rate  was  a 
trifle  over  140  francs,  or  a  little  less  than  the  government  rate,  but 
in  the  absence  of  a  definite  basis  of  charge,  the  customers  of  the 
company  must  have  incurred  the  risk  of  personal  discriminations, 
a  nuisance  which  government  ownership  effectually  terminates. 
The  company  established  public  call-offices  for  non-subscribers, 
but  charged  twice  as  much  per  call  as  did  the  government  for  the 
use  of  its  public  pay  stations. 

Up  to  this  time,  however,  the  Swiss  telegraph  administration 
had  carried  on  the  telephone  business  with  the  consent  of  the  legis- 
lative branch  of  the  government,  but  without  its  advice.  The  con- 
sent of  the  Federal  Assembly  had  been  indispensable  to  the  success- 
ful assumption  of  competence  in  telephone  affairs  by  the  Federal 
Council,  and  later  to  the  acquisition  of  the  private  exchange 
system  at  Zurich.  That  consent  had  been  freely  given,  but  in  so 
democratic  a  government  as  the  Swiss  the  executive  could  not 

dts  Zttrcher  Tekphonnetzes.   Bundesblatt,  1884,  iv,  274.   Cf.  Reinhard,  ch.  i:  "Die 
Geschichte  des  Telephonnetzes  unter  der  provisorischen  Organisation." 
1  HGK  Munchen,  1881,  pp.  50-53. 


2l6  PUBLIC  OWNERSHIP  OF  TELEPHONES 

long  administer  a  business  of  such  growing  importance  as  the  tele- 
phone business  without  the  advice,  as  well  as  the  consent,  of  the 
representatives  of  the  people.  In  several  respects  the  methods 
adopted  by  the  telegraph  administration  for  the  development  of 
the  telephone  service  gave  rise  to  criticism  on  the  part  of  the  pub- 
lic it  had  undertaken  to  serve.  Such  criticism  is  inevitable  in  any 
experimental  and  growing  business.  The  only  peculiar  features  in 
the  early  Swiss  telephone  situation  were  the  ease  with  which  the 
public  could  obtain  a  hearing  for  its  criticisms  and  the  promptness 
with  which  remedies  were  agreed  upon  and  applied. 

Public  criticism  was  directed  in  the  first  place  against  a  number 
of  the  telegraph  authorities'  administrative  practices.  The  re- 
quirement that  the  prospective  subscriber  should  bind  himself 
for  a  long  period,  as  in  Germany  also  at  that  time,  was  criticized 
on  the  ground  that  it  repelled  many  members  of  the  public  who 
could  be  easily  convinced  of  their  need  for  telephone  service  by  a 
short  trial  at  less  risk.  The  conditions  for  the  establishment  of 
public  call-offices  in  rural  villages  for  the  purpose  of  telephone 
connection  with  the  nearest  urban  exchange  were  also  regarded 
as  onerous.  The  local  authorities  in  such  villages  had  hitherto 
been  required  to  provide  accommodation  and  attendance  for  the 
station,  to  pay  the  ordinary  flat  rate  of  150  francs  a  year,  and  also 
the  mileage  charges  of  3  francs  per  100  meters  in  excess  of  2  kilo- 
meters from  the  exchange.  In  other  words,  the  local  village  au- 
thorities received  no  better  terms  than  a  private  individual  in 
the  same  village  would  have  received. 

There  was  less  criticism  of  the  administration's  practice  with 
regard  to  the  establishment  of  public  call-offices  within  existing 
exchange  areas  or  of  new  exchanges  in  fresh  areas.  The  telephone 
authorities  made  special  arrangements  with  subscribers  who 
wished  to  open  their  connections  to  the  public  and  in  the  larger 
cities  constructed  public  call-offices  freely.  New  exchanges  were 
constructed  whenever  demanded  by  at  least  ten  persons  in  any 
town  or  village  not  within  the  bounds  of  an  existing  exchange  area, 
and  except  for  occasional  differences  of  opinion  as  to  the  extent 
of  an  existing  area,  the  administration's  policy  in  this  respect  gave 
rise  to  little  criticism.  Subscribers  who  were  so  situated  as  to  be 


DEVELOPMENT   OF  THE  SWISS  SYSTEM  217 

unable  to  fulfill  the  requirements  for  a  public  exchange  could  always 
secure  a  private  branch  exchange  by  purchasing  the  requisite 
apparatus,  providing  accommodation  and  attendance,  and  paying 
the  regular  annual  rates.  In  the  event  of  such  an  exchange  attract- 
ing fresh  subscribers  it  could  easily  be  transformed  into  a  public 
exchange. 

The  administration's  policy  with  respect  to  inter-urban  lines 
was  found  less  satisfactory.  Originally,  before  the  construction 
of  inter-urban  lines  as  a  part  of  the  public  telephone  system,  the 
administration  had  permitted  the  construction  of  private  trunk 
lines  on  the  following  conditions:  J  two  different  localities  might 
be  connected  by  a  private  telephone  line:  (i)  provided  one  of  the 
localities  was  more  than  one  kilometer  distant  from  the  nearest 
telegraph  office;  (2)  provided  the  owner  defrayed  all  the  ex- 
penses; (3)  provided  the  line  did  not  prejudice  the  present  or  future 
development  of  the  government  telegraph  system ;  and  (4)  provided 
that  the  owner  paid  an  annual  fee  to  the  telegraph  administration 
of  10  francs  per  kilometer,  but  not  less  than  20  francs  in  all.  Public, 
i.  e.,  cantonal  and  municipal,  authorities  were,  however,  excused 
from  the  payment  of  the  fee.  The  concession  might  be  withdrawn 
at  the  discretion  of  the  telegraph  authorities. 

These  conditions  were  certainly  not  calculated  to  encourage  the 
construction  of  a  system  of  inter-urban  telephone  lines  of  general 
benefit  to  the  community;  but  it  must  be  remembered  that  in  1878 
an  inter-urban  telephone  system  was  still  a  dream  for  bold  inven- 
tors, —  it  was  not  yet  a  business  proposition  for  practical  persons. 
The  use  of  the  telephone  for  purely  private  purposes  within  the 
limits  of  a  single  private  property  was  still  uppermost  in  the  minds 
of  the  manufacturers  of  telephones.  When  in  the  early  eighties  the 
government  entered  upon  the  construction  of  urban  exchange  sys- 
tems, the  advance  of  telephonic  technique  had  made  long-distance 
telephony  a  practicable  commercial  venture,  and  the  government 
did  not  neglect  to  alter  its  policy.  For  several  years  it  constructed 
interurban  lines  energetically,  then  discovered  their  injurious  ef- 
fect on  parallel  telegraphic  lines  and  proceeded  more  cautiously. 


BundesbescUuss  betre/end  Konzessionen  fiir  Telephonleitungen  (vom  18.  Feb 


1878}.    Bundesblatt,  1878,  ii.,  291. 


21 8  PUBLIC  OWNERSHIP  OF  TELEPHONES 

At  the  same  time  the  increasing  average  length  of  inter-urban  con- 
nections first  diminished  the  margin  of  profit  on  inter-urban 
business,  then  converted  the  profit  into  a  loss.  These  circum- 
stances, added  to  the  need  for  a  means  of  preventing  ill-considered 
applications  for  long-distance  lines  on  the  part  of  over-sanguine 
business  men,  led  the  administration  to  adopt  the  German  plan  of 
requiring  guarantees  from  the  prospective  beneficiaries  of  inter- 
urban  lines  as  a  condition  of  fresh  construction.  These  guarantees 
were  based  on  the  cost  of  construction,  and  were  intended  to  in- 
sure to  the  government  a  sufficient  revenue  to  protect  it  against 
loss  through  the  operation  of  the  lines.  It  does  not  seem  to  have 
attempted  to  recoup  its  losses  on  the  parallel  telegraph  lines, 
but  the  natural  effect  of  this  policy  was  to  retard  somewhat  the 
transfer  of  inter-urban  business  from  the  telegraph  to  the  tele- 
phone. 

It  is  not  easy  to  gauge  the  extent  to  which  this  policy  impeded 
the  development  of  the  inter-urban  telephone  system.  In  1887, 
when  the  business  men  of  Basel  desired  a  second  wire  to  Zurich,1 
the  telegraph  authorities  demanded  a  guaranteed  annual  income 
of  7,000  francs  from  the  new  line  from  the  cantonal  authorities. 
This  guarantee  amounted  to  70  francs  per  kilometer.  The  cantonal 
authorities  turned  to  the  local  Chamber  of  Commerce  to  assume  the 
burden  of  the  guarantee.  This  the  Chamber  readily  agreed  to  do, 
since  the  quantity  of  fresh  traffic  in  sight  would  yield  more  than  the 
required  income.  The  line  was  at  once  constructed.  In  this  case 
the  guarantee  was  superfluous  and  the  Basel  Chamber  of  Com- 
merce was  needlessly  required  to  assume  the  risk  of  failure.  In 
other  cases,  doubtless,  the  raising  of  the  guarantee  was  more  incon- 
venient, and  in  some  it  must  have  been  altogether  impossible, 
unless  the  policy  were  to  fail  in  its  purpose.  Certainly  this  would 
be  vexatious  to  business  men,  but  not  unreasonable,  provided  the 
amount  of  the  required  guarantees  was  not  excessive. 

The  chief  criticism  of  the  policy  of  the  Swiss  telephone  adminis- 
tration at  this  time,  however,  concerned  the  rates.  This  was  to  be 
expected,  but  the  particular  form  which  the  criticism  of  telephone 
rates  assumed  in  Switzerland  was  unusual.  Unlike  the  agitation 

1  Verwaltungs-Bericht  dcs  Kantons  Basel-Stadt,  1888,  viii,  2. 


DEVELOPMENT  OF  THE  SWISS  SYSTEM  219 

at  this  time  in  Germany  for  a  reduction  of  the  local  rates,  that  in 
Switzerland  did  not  originate  solely  with  the  commercial  classes, 
nor  spring  so  much  from  the  universal  desire  to  cut  down  the 
expenses  of  transacting  business,  as  from  a  peculiar  Swiss  desire 
to  "promote  the  exchange  of  ideas  by  the  popularization  of  the 
'phone."  l  The  large  urban  commercial  interests,  to  be  sure, 
asserted  that  the  toll  rate  (which  was  raised  in  1887  for  distances 
above  100  kilometers  from  20  to  50  centimes)  was  excessive;  but 
the  bulk  of  the  criticism  was  directed  against  the  flat  rate  for  ex- 
change service.  The  popular  critics  contended  that  under  the 
system  of  flat  rates  the  small  users,  and  they  were  in  general  the 
non-commercial  users,  especially  the  denizens  of  the  country  vil- 
lages and  the  farmers  and  peasant  proprietors,  paid  a  dispropor- 
tionate share  of  the  cost  of  supporting  the  telephone  system.  This 
was  an  injustice  which  could  not  be  remedied  by  local  rate  discrim- 
ination as  demanded  by  the  early  German  rate  reformers,  but  only 
by  personal  discrimination.  Thus  a  different  keynote  was  struck 
at  the  very  beginning  of  the  Swiss  agitation  for  a  reform  of  tele- 
phone rates.  In  the  December  session  of  the  Federal  Assembly, 
1887,  the  Federal  Council  was  invited  to  draft  a  bill  for  the  pur- 
pose of  regulating  the  conduct  of  the  telephone  business,  and  of 
reducing  the  rates. 

The  Federal  Council  reported  its  bih1  at  the  December  session 
of  the  following  year.2  In  the  message  which  accompanied  the 
bill,  the  Council  explained  the  delay  in  the  framing  of  legislation 
to  regulate  the  conduct  of  the  telephone  business  by  the  uncertainty 
which  had  hitherto  surrounded  the  infant  industry.3  Neither  the 
technical  nor  the  commercial  conditions  under  which  telephone 
service  had  been  rendered  were  sufficiently  stable  to  afford  a  basis 
for  the  calculation  of  a  new  and  logical  schedule  of  rates.  The 
message  conceded  that  the  more  rapid  popularization  of  the  tele- 
phone required  a  revision  of  the  terms  of  the  subscribers'  contract 
as  well  as  of  the  basis  of  the  rates,  and  proceeded  to  lay  down 

1  Kommissionalbericht  des  Standerates  uber  die  Geschaftsfiihrung  des  Bundesrates 
fiir  1889.   Bundesblatt,  1890,  ii,  765. 

2  Botschaft  des  Bundesrates  an  die  Bundesversammlung  uber  den  Gesetzentwurf 
belreffend  das  Telephonwesen  vom  13.  Nov.,  1888.   Bundesblatt,  1888,  iv,  649. 

»  Ibid.,  650. 


220  PUBLIC  OWNERSHIP  OF  TELEPHONES 

general   principles    upon   which   such    a   revision    should   take 
place.1 

The  uniform  flat  rate,  the  message  declared,  was  unsound  in 
principle,  because  it  attempted  to  cover  at  the  same  time  the 
expenses  of  construction  and  those  of  operation.  The  result  was 
that  subscribers  of  long  standing  paid  a  disproportionate  contri- 
bution towards  the  expenses  of  construction,  whereas  new  sub- 
scribers who  wished  to  withdraw  could  not  do  so  without  throwing 
the  expense  of  their  connection  back  upon  the  administration. 
Hence  arose  the  necessity  for  a  long  contract  period.  Furthermore, 
the  flat  rate  compelled  small  users  to  defray  a  portion  of  the  ex- 
pense of  rendering  service  to  the  large  users.  At  that  time  the 
number  of  annual  talks  from  a  single  subscriber's  station  ranged 
all  the  way  from  200  to  30,000.  This  inequality  in  the  use  of  the  tel- 
ephone under  the  existing  flat  rate  occasioned  a  corresponding  ine- 
quality in  the  charge  per  message.  Whereas  the  smallest  user  paid 
75  centimes  per  talk,  the  largest  paid  only  i  centime.  This  inequal- 
ity in  the  burden  of  the  rates  was  the  more  unfortunate  since  the 
heaviest  charge  fell  on  the  shoulders  of  those  least  able  to  bear  it. 

The  remedy  was  to  separate  the  charge  into  two  portions,  one 
fixed  in  advance  and  intended  to  cover  the  costs  of  construction, 
the  other  variable  and  depending  on  the  use  of  the  service.  The 
former  should  be  so  adjusted  as  to  reimburse  the  telephone  ad- 
ministration, within  a  few  years  of  the  beginning  of  the  contract, 
for  the  cost  of  the  subscriber's  share  of  the  exchange  equipment. 
Thus  the  necessity  for  a  long  contract  period  would  be  obviated. 
The  variable  charge  should  be  a  definite  fee  for  each  talk.  On 
account  of  the  inconvenience  of  making  an  accurate  enumeration 
of  all  calls,  the  Federal  Council  proposed  to  depart  from  the  logic 
of  a  pure  message  rate,  and  to  charge  5  francs  per  hundred  or 
fraction  thereof  in  excess  of  five  hundred  and  to  include  the  first  five 
hundred  talks  under  the  fixed  portion  of  the  annual  dues  without 
further  charge.  The  fixed  charge  was  set  at  120  francs  the  first 
year,  100  the  second,  and  80  the  third  and  each  succeeding  year. 
As  the  average  number  of  talks  per  telephone  in  1887  was  between 

1  Botschaft  des  Bundesrates  an  die  Bundesversammlung  iiber  den  Gesetzentwurf 
betreffend  das  Telephonwesen  vom  13.  Nov.,  1888.  Bundesblatt,  1888,  iv,  653. 


DEVELOPMENT  OF  THE  SWISS  SYSTEM  221 

1,200  and  1,300,  this  scheme  fixed  the  limit  of  unpaid  talks  suffi- 
ciently low  to  insure  a  considerable  differentiation  in  the  total 
charge  to  large  and  small  users.  On  the  basis  of  the  existing  use 
of  the  service,  a  bare  one  third  of  the  subscribers  would  have 
fallen  below  the  limit  of  five  hundred  free  talks  a  year. 

The  telephone  administration  estimated,  however,  that  the 
adoption  of  the  proposed  schedule  of  rates  would  diminish  by 
thirty  per  cent  the  average  annual  number  of  calls  per  subscrib- 
er's station,  which  would  have  increased  somewhat  the  proportion 
of  subscribers  who  would  escape  the  payment  of  the  variable  part  of 
the  proposed  rate.  Yet  the  reduction  of  the  flat  rate  was  so  great 
that,  on  the  basis  of  their  existing  use  of  the  service,  only  seven  per 
cent  of  the  total  number  of  subscribers  would  have  to  pay  more 
under  the  proposed  than  under  the  existing  schedule  of  rates.1 

Such  a  radical  reduction  of  rates  was  only  possible  because 
experience  had  shown  the  former  flat  rate  of  150  francs  to  be  ex- 
cessive. During  the  eight  years  the  government  had  been  engaged 
in  the  telephone  business,  it  had  not  only  met  all  operating  ex- 
penses out  of  current  receipts,  but  had  also  found  in  a  similar 
manner  all  the  sums  needed  for  fresh  construction.  Thus  no  funds 
had  been  required  for  interest  and  amortization,  and  the  realized 
surplus  had  not  only  sufficed  for  the  replacement  of  worn-out  and 
obsolete  plant,  but  had  still  furnished  a  small  net  profit  to  be  cov- 
ered into  the  Federal  Treasury.  The  proposed  rates  were  estimated 
to  yield  an  average  of  90  francs  per  station  from  the  existing  sub- 
scribers, an  average  that  would  tend  to  be  increased  by  the  con- 
stant accession  of  new  subscribers.  At  this  level  of  rates,  the  Fed- 
eral Council  estimated  that  it  could  meet  all  operating  expenses, 
as  well  as  the  fixed  charges  on  the  capital  to  be  required  for  new 
construction;  for  it  proposed,  now  that  the  experience  of  eight 
years  furnished  data  for  the  calculation  of  rates  of  depreciation 
and  of  the  demand  for  new  facilities,  to  relieve  the  old  subscribers 
from  the  burden  of  financing  new  construction  and  to  raise  fresh 
capital,  as  needed,  by  advances  from  the  Federal  Treasury. 

The  same  principles  were  applied  to  the  reform  of  the  long-dis- 

1  Bericht  betrejfend  den  Gesetzesentwurf  uber  das  Tehphonwesen  der  Kommission  des 
St&nderates  (wm  6.  April,  1889).  Bundesblatt,  1889,  ii,  284  el  seq.,  esp.  311,  312. 


222  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tance  rates.  That  branch  of  the  service  had  not  been  yielding  any 
profit,  and  the  revision  of  rates  consequently  had  to  be  upward 
instead  of  downward.  On  the  basis  of  the  average  cost  of  con- 
struction of  toll  lines,  of  the  operating  expenses  and  fixed  charges 
as  well  as  of  up-keep  and  their  use  by  the  public,  the  Federal 
Council  computed  that  an  average  yield  of  75  centimes  per  mes- 
sage was  necessary  to  make  both  ends  meet  in  this  branch  of  the 
service.  Instead,  however,  of  drafting  a  schedule  of  zone  rates 
which  would  have  yielded  such  an  average,  the  Council  declared 
that  not  the  distance  a  toll  message  traveled,  but  the  time  the 
plant  was  occupied  in  transmitting  the  message,  was  a  more  con- 
venient and,  under  the  circumstances,  a  more  nearly  just  basis 
of  toll  rates.  Consequently,  it  proposed  to  establish  a  universal 
flat  toll  rate  of  75  centimes  for  all  inter-urban  lines  in  Switzerland 
and  to  reduce  the  period  of  a  single  talk  from  five  to  three  minutes. 
Longer  talks  would  be  counted  as  many  times  as  they  contained 
periods  of  three  minutes,  fractions  of  three  minutes  being  counted 
as  one  talk.  This  proposal  contemplated  an  increase  of  the 
charges  on  all  toll  talks,  and  for  connections  between  neighbor- 
ing towns  the  increase  would  have  been  very  considerable. 

The  Federal  Council's  bill  was  received,  in  the  quarters  for  the 
benefit  of  which  it  had  been  primarily  framed,  with  every  token 
of  the  liveliest  satisfaction.  The  effect  for  all  small  users,  where- 
ever  situated,  would  be  a  reduction  of  forty  per  cent  in  the  size 
of  their  telephone  bill,  a  reduction  which  more  than  surpassed  their 
rosiest  anticipations.  But  among  the  commercial  interests  in  the 
large  towns,  the  proposals  met  with  a  less  cordial  greeting.  The 
system  of  measured  service  rates  was  new  to  Europe,  and  the  big 
business  men  had  undoubtedly  expected  a  general  reduction  of  the 
flat  rate  instead  of  the  introduction  of  a  new  basis  of  charge 
which  would  have  the  effect,  for  some  of  them  at  least,  of  increasing 
the  cost  of  local  exchange  service.  The  increase  of  the  toll  rates, 
being  more  general,  evoked  a  correspondingly  more  general  pro- 
test, but  one  scarcely  more  intense. 

The  large  users  could  not  complain  of  the  general  level  of  the 
proposed  schedule  of  rates,  and  directed  their  criticism  against 
the  location  of  the  limit  of  free  calls  in  the  schedule  of  exchange 


DEVELOPMENT  OF  THE  SWISS  SYSTEM  223 

rates  and  against  the  system  of  classification  adopted  for  toll  rates. 
In  the  latter  criticism  they  were  joined  by  the  public  generally.1 
An  alternative  revised  schedule  of  rates,  suggested  by  the  central 
organization  of  chambers  of  commerce  and  industry,  will  serve 
to  illustrate  the  nature  of  all  the  critics'  proposals :  — 

(1)  the  limit  of  the  free  local  calls  should  be  raised  to  1000; 

(2)  the  duration  of  a  talk  should  remain  at  five  minutes;  and 

(3)  the  schedule  of  toll  rates  should  be  remodeled  as  follows:, — 

up  to  50  kilometers  20  centimes 

51-100  "  50 

over  100  "  75 

(i.  e.,  roughly,  4  cents  for  a  talk  of  not  more  than  30  miles, 

10    "       "   "     "    "  31  to  60  miles,  and 

15    "      "  all  others). 

The  only  argument  in  favor  of  raising  the  free  limit  of  local  talks 
was  the  familiar  one  that  the  burden  on  business  interests  must 
be  made  as  light  as  possible.  Under  the  circumstances  this  could 
not  fail  to  be  effective,  since  the  business  interests  were  well  organ- 
ized and  agreed  as  to  what  they  wanted,  whereas  the  resistance 
of  the  other  interests  was  weakened  by  the  very  magnitude  of  the 
concessions  held  out  to  them  by  the  government's  proposals.  The 
argument  against  the  abolition  of  the  distance  factor  as  one  of  the 
bases  of  classification  for  toll  messages  was  more  logical  and  found 
a  ready  response  on  all  sides. 

The  result  of  the  deliberations  of  the  Federal  Assembly  was  a 
compromise.2  The  duration  of  a  message  was  left  at  three  minutes, 
as  proposed  by  the  Federal  Council;  but  the  rate  for  toll  messages 
transmitted  not  more  than  50  kilometers  was  fixed  at  30  centimes, 
those  transmitted  from  51  to  100  kilometers  at  50  centimes,  and 
only  on  those  transmitted  more  than  100  kilometers  was  the  pro- 

1  Ci.BerichtbetrefenddenGesetzentwurfuberdas  Telephonwesen,  vorgelegt  im Namen 
der  Kommission  des  Standerates  (vom  6.  April,  1889).  Bundesblatt,  1889,  ii,  284. 
This  report  contains  (pp.  293-302)  reprints  of  ten  memorials  addressed  to  the  Federal 
Assembly  or  Council  by  the  representatives  of  the  various  interests  to  be  affected  by 
the  proposed  legislation  concerning  telephone  rates.  The  most  important  memorial 
came  from  the  Swiss  Commercial  and  Industrial  Association,  the  general  organiza- 
tion of  the  various  cantonal  chambers  of  commerce  and  industry. 

a  Law  of  June  27,  1889. 


224  PUBLIC  OWNERSHIP  OF  TELEPHONES 

posed  rate  of  75  centimes  retained.  The  limit  of  unpaid  local  talks 
was  fixed  at  eight  hundred  per  annum.  The  other  proposals  of  the 
Council  were  accepted  without  important  alterations.  It  was 
provided  that  subscribers  might  terminate  their  contracts  on  one 
month's  notice,  provided  they  paid  an  indemnity  to  the  telephone 
administration  of  40  francs,  if  the  contract  was  of  less  than  one 
year's  standing,  or  20  francs  if  of  more  than  one  but  less  than  two 
years'  standing.  Local  authorities  were  authorized  to  pay  only 
120  francs  a  year  for  public  call-offices  in  villages  without  a  local 
exchange,  plus  mileage  charges  on  the  connecting  line  for  the  ex- 
cess over  2  kilometers  from  the  nearest  exchange.  The  call-office 
rate  was  left  at  10  centimes,  one  half  the  receipts  going  to  the  local 
authorities  who  were  to  be  held  responsible  for  the  maintenance 
of  the  station.1  The  telephone  authorities  were  directed  to  es- 
tablish exchanges  and  toll  lines  where  a  sufficient  demand  should 
be  shown  to  exist,  but  were  authorized  to  use  their  discretion  in  the 
establishment  of  reasonable  indicia  of  the  existence  of  a  sufficient 
demand. 

The  Federal  Assembly  obviously  intended  that  the  telephone 
system  should  be  conducted  on  the  most  liberal  policy  possible, 
but  was  not  blind  to  the  dangers  of  tying  the  hands  of  the  admin- 
istration too  tightly  in  its  dealings  with  the  public.  The  financial 
effect  of  the  ultimate  schedule  of  rates  showed  less  consideration 
for  the  contentions  of  the  telephone  authorities.  It  appeared  2 
during  the  course  of  the  discussion  of  the  government's  bill  that 
the  official  estimates  of  the  yield  of  the  proposed  rates  were  suffi- 
ciently conservative  to  admit  of  some  reduction  in  their  general 
level;  but  the  reduction  actually  adopted  by  the  Federal  Assembly, 
especially  in  the  schedule  of  toll  rates,  was  really  considerable. 
Time  would  tell  whether  or  not  the  representatives  of  the  people 
had  been  too  bold  when  they  resolved  to  take  a  hand  in  the  man- 
agement of  their  telephone  business. 

Events  showed  that  the  confidence  of  the  Federal  Assembly  in 
the  discretion  of  its  telephone  administration  was  well  placed. 
The  former  liberal  policy  of  establishing  new  exchanges  was  main- 

1  All  the  receipts  for  the  first  800  talks  went  to  the  local  authority. 
*  Bericht  der  Kommission  des  Slanderates,  p.  311. 


DEVELOPMENT  OF  THE  SWISS  SYSTEM  225 

tained,  and  the  obligations  imposed  upon  local  authorities  desiring 
fresh  long-distance  connections  were  reduced.  The  applicant 
(local  authority,  cantonal  or  municipal)  for  a  new  line  was  required 
to  guarantee  that  the  annual  receipts  should  amount  to  50  francs 
per  kilometer,  —  a  requirement  which  would  seem  to  indicate  that, 
the  former  requirement  had  been  excessive,  or  rather  had  proved 
in  the  light  of  later  technical  and  commercial  developments  to 
have  been  excessive.  The  new  guarantee  was  so  fixed  as  to  yield 
the  administration  an  annual  revenue  of  15%  of  the  cost  of  con- 
struction of  inter-urban  lines,1  a  rate  of  return,  which,  in  the  light 
of  the  facts  then  known  concerning  the  life  of  telephone  ma- 
terial and  apparatus,  can  certainly  not  be  regarded  as  excessive. 

This  policy  of  requiring  a  guaranteed  minimum  income  as  the 
condition  of  the  construction  of  inter-urban  lines  not  only  served  to 
prevent  the  construction  of  toll  lines  between  neighboring  towns 
that  would  not  pay  (and  hence  at  the  existing  rock-bottom  level 
of  rates  could  not  be  fairly  said  to  have  been  needed),  but  also, 
as  the  range  of  effective  communication  increased,  served  as  a 
mode  of  automatically  readjusting  toll  rates  to  the  constantly 
altering  conditions  of  service.  A  single  illustration  will  show  how 
this  was  accomplished.2 

In- the  year  1892,  the  Merchants'  Association  in  Lugano,  in  the 
Italian  Canton  of  Ticino,  asked  for  a  long-distance  line  over  the 
Alps  to  connect  the  three  exchanges  in  that  canton  with  the  rest 
of  Switzerland.  Lucerne,  the  nearest  Swiss  town  of  importance, 
was  170  kilometers  distant,  and  the  desired  line  would  be  so  ex- 
pensive as  to  be  unremunerative  at  the  existing  level  of  rates. 
At  75  centimes  a  talk,  not  talks  enough  could  be  transmitted  in  a 
year,  with  the  line  working  at  its  fullest  capacity,  to  earn  fifteen 
per  cent  of  the  cost  of  construction.  And  as  there  were  then  only 

1  The  guarantees  ran  for  ten  years,  at  the  end  of  which  time,  if  the  receipts  from 
traffic  did  not  equal  the  amount  of  the  guarantee  and  the  local  authority  declined 
to  renew  it,  the  telephone  authorities  might  dismantle  the  line. 

1  (i)  Botschaft  des  Bundesrates an  die  Bundesversammlung  belr.  einer  Telephonverbin- 
dung  zwischen  den  Hauptorlen  des  Kantons  Tessin  und  der  Innerschweiz  (vom  24. 
Januar,  1893).  Bundesblatt,  1893,  i,  205: 

(2)  V '  erwaltungsbericht  Baselstadt,  1895,  viii,  4. 

(3)  Gesch&flsbericht  des  Bundesrates  fur  das  J ahr  1897.    Bundesblatt,  1898,  ii,  599. 

(4)  Geschdftsbericht  des  Bundesrates  fur  das  Jahr  1900.    Bundesblatt,  1901,  ii,  764. 


226  PUBLIC  OWNERSHIP  OF  TELEPHONES 

87  telephone  subscribers  in  the  entire  Canton  of  Ticino,  and  as  the 
inter-urban  line  connecting  the  three  existing  exchanges  was  not 
earning  the  amount  of  its  guarantee,  the  Lugano  Merchants'  Asso- 
ciation was  advised  to  await  the  construction  of  a  through-line 
between  Switzerland  and  the  great  Italian  commercial  center  of 
Milan. 

The  next  we  hear  of  the  attempt  to  secure  a  toll  line  to  Ticino 
is  in  1895.  Then  the  municipality  of  Lugano  requested  the  support 
of  the  government  of  the  canton  of  Baselstadt  in  behalf  of  the  pro- 
ject for  a  long-distance  line  from  Basel  to  Milan,  via  Lugano.  The 
government  of  Basel  turned,  as  was  its  wont,  to  the  local  Chamber 
of  Commerce,  to  inquire  if  the  latter  would  accept  a  portion  of  the 
guarantee  for  the  projected  line.  The  latter  replied  that  it  would 
not,  because  there  was  no  sufficient  demand  for  a  line  to  Ticino 
and  Milan.  Business  men  in  Basel  preferred  the  telegraph  for 
such  a  distance.  But  the  business  men  of  Ticino  would  not  be 
discouraged.  After  another  five  years  of  more  or  less  constant 
negotiation  with  the  commercial  interests  north  of  the  Alps,  they 
undertook  to  give  on  their  own  sole  responsibility  the  required 
guarantee.  In  1900  a  line  was  opened  between  Lugano  and  Zurich, 
and  a  second  between  Bellinzona  and  Lucerne. 

During  the  first  year  after  their  opening,  the  traffic  over  these 
two  lines  averaged  only  thirteen  messages  a  day.  Consequently, 
the  receipts  amounted  only  to  a  bare  third  of  the  guaranteed  in- 
come, and  the  real  cost  of  the  connection  to  the  interests  which 
had  demanded  it  was  nearly  thrice  the  nominal  rate.  Yet  the 
guarantee  did  not  suffice  to  cover  the  costs  to  the  administration, 
for  the  construction  over  the  Alps  proved  to  be  exceptionally 
expensive.  When  in  1900,  during  the  debate  over  the  telephone 
budget  in  the  lower  branch  of  the  Federal  Assembly,  it  was  pro- 
posed to  relieve  the  local  authorities  of  their  guarantees  for  inter- 
cantonal  lines  l  (a  proposal  which,  if  accepted,  would  have  thrown 
on  the  telephone  administration  all  the  loss  occasioned  by  such 
lines  as  those  from  Zurich  and  Lucerne  to  Ticino),  the  Federal 
Council  easily  convinced  the  representatives  of  the  people  both 
of  the  theoretical  soundness  of  the  principle  of  guarantees  and  of 

1  Geschaftsbericht  des  Bundesrates  fur  das  Jahr  1900.  Bundesblatt,  1901,  ii,  768. 


DEVELOPMENT  OF  THE  SWISS  SYSTEM  227 

its  practical  justice  in  the  particular  case  which  had  given  rise  to 
the  proposal. 

The  popular  satisfaction  with  the  results  of  the  revision  of  local 
exchange  rates  by  the  law  of  1889  was  less  enduring  than  that 
with  the  results  of  the  other  features  of  that  reform.1  The  new 
rates  went  into  effect  on  January  i,  1890.  The  statistics  of  opera- 
tion for  the  business  year  1891  showed  that  in  only  36  out  of  91 
exchange  systems  were  there  any  subscribers  sending  more  than 
800  local  messages  a  year.  In  nine  exchanges  no  subscriber  origi- 
nated more  than  100  local  talks,  in  eleven  others  none  more  than 
200,  and  in  sixteen  others  none  more  than  400.  The  average  use 
of  a  connection  for  the  entire  Swiss  system  was  reduced  to  545 
originating  talks.  Obviously  small  users  were  still  contributing 
toward  the  expense  of  rendering  the  service  to  the  large  users,  and 
the  reduction  of  the  fixed  charge  had  tempted  them  to  join  the 
system  in  rapidly  increasing  numbers.  At  the  same  time  the  finan- 
cial results  of  operation  under  the  revised  schedule  of  rates  proved 
eminently  satisfactory.  Notwithstanding  the  radical  nature  of  the 
reduction,  the  new  level  of  rates  still  yielded  a  surplus  of  receipts 
over  operating  expenditures  more  than  sufficient  to  defray  the  cost 
of  fresh  construction  as  well  as  of  maintenance.  Hence  in  the  June 
session  of  the  Federal  Assembly,  1892,  the  Federal  Council  was 
invited  to  draft  a  scheme  for  a  fresh  reduction  of  rates,  by  which 
small  users,  especially  those  dwelling  in  the  rural  districts,  where 
the  average  amount  of  local  traffic  per  subscriber  was  smallest, 
would  obtain  further  relief. 

The  Federal  Council  conceded  that  rural  telephone  users  were 
entitled  to  greater  consideration  as  compared  with  the  large  urban 
users  than  had  been  accorded  to  them  by  the  law  of  1889.  The 
public,  however,  it  asserted,  had  obtained  a  wrong  impression  con- 
cerning the  financial  condition  of  their  telephone  undertaking. 
To  be  sure,  the  business  was  still  profitable,  but  several  circum- 
stances made  it  inexpedient  to  proceed  at  once  to  a  further  consider- 
1  The  progress  of  the  movement  aiming  at  a  new  reform  of  the  local  rates  may  be 
traced  in  the  following  messages  of  the  Federal  Assembly:  — 

(1)  Oct.  15,  1892;  Bundesblatt,  1892,  v,  313; 

(2)  April  28,  1893;  Bundesblatt,  1893,  ii,  769;  and 

(3)  March  13,  1894;  Bundesblatt,  1894,  i,  779- 


228  PUBLIC  OWNERSHIP  OF  TELEPHONES 

able  reduction  of  rates.  In  the  first  place,  the  steady  and  rapid 
increase  of  subscribers  then  taking  place  was  not,  from  a  financial 
point  of  view,  an  unmitigated  blessing.  For  until  the  whole  ex- 
change area  was  developed,  the  addition  of  new  subscribers  com- 
monly occurred  at  a  constantly  increasing  average  distance  from 
the  exchange,  and  hence  the  cost  of  construction  per  subscriber 
tended  also  to  increase.  In  cities  the  congestion  of  wires  had  al- 
ready made  necessary  the  replacement  of  open  wiring  by  cables, 
a  change  which  entailed  likewise  an  enhanced  cost  of  construc- 
tion, whereas  its  effect  on  the  charges  for  maintenance  was  as  yet 
uncertain.  The  cost  of  inter-urban  lines  was  also  increasing,  since 
their  increasing  number  was  requiring  the  introduction  of  metallic 
circuits.  Finally,  the  rapid  growth  of  electrical  undertakings  of 
high  power,  electric  lighting  and  street  railway  systems,  which 
then  seemed  imminent,  would  entail  the  construction  of  costly  pro- 
tective devices  for  the  local  lines  in  all  large  cities  at  the  expense 
perhaps  of  the  telephone  administration.  Since  at  least  some  pro- 
fit was  indispensable  for  the  maintenance  of  the  telephone  service 
at  a  satisfactory  standard  of  efficiency,  the  time  appeared  inoppor- 
tune for  a  reduction  of  rates. 

The  Federal  Council,  however,  was  of  the  opinion  that  the  rates 
should  be  reformed  in  the  interest  of  small  users  without  causing 
a  change  in  their  general  level.  The  limit  of  unpaid  local  calls 
under  the  act  of  1889  had  been  fixed  too  high.  The  Council  de- 
clared that  the  limit  should  be  made  lower  and  the  fixed  portion 
of  the  local  rate  should  be  correspondingly  reduced.  Such  a  change 
would  benefit  small  users  everywhere  without  in  any  way  burden- 
ing large  users.  Accordingly  it  suggested  that  the  Federal  Assem- 
bly fix  the  lump  charge  at  100  francs  the  first  year,  80  the  second, 
and  60  the  third  and  each  succeeding  year,  and  charge  5  cen- 
times per  call  for  each  call  in  excess  of  400  (instead  of  5  francs  a 
hundred  in  excess  of  800,  as  formerly).  This  proposal  would  have 
effected  a  real  reduction  for  all  originators  of  less  than  800  calls 
a  year,  that  is,  for  much  more  than  half  of  the  whole  body  of 
subscribers. 

These  proposals  were  received  with  indifference  by  the  commer- 
cial interests  in  the  large  cities.  They  realized  that  they  could  not 


DEVELOPMENT  OF  THE  SWISS  SYSTEM  229 

reasonably  ask  for  fairer  treatment  than  they  were  already  receiv- 
ing at  the  hands  of  the  government,  and  by  protestations  were  more 
likely  to  injure  than  to  promote  their  cause.  The  rural  interests, 
however,  were  dissatisfied.  They  contended  —  and  the  Federal 
Council  conceded  —  that  the  local  service  was  worth  less  in  small 
rural  communities  than  in  the  cities,  and  clamored  for  greater  con- 
cessions. For  example,  in  behalf  of  the  rural  subscribers  in  the  can- 
ton of  Zurich,  the  cantonal  government  sent  in  a  memorial,  urging 
the  abolition  of  mileage  charges  on  lines  within  thirty  kilometers 
of  the  exchange  office,  and  the  extension  of  the  local  rates  to  all  sta- 
tions located  within  that  distance  of  "central."  Such  a  sweeping 
reduction  (it  amounted  to  the  abolition  of  all  toll  charges  for  dis- 
tances up  to  thirty  kilometers) 1  was  more  than  the  Federal  Council 
saw  its  way  to  conceding,2  although  it  agreed  with  its  memorialists 
that  rural  subscribers  were  justified  in  seeking  special  terms.  The 
general  level  of  the  rates,  it  declared,  must  be  maintained  at  80 
francs  per  station,  as  computed  in  1889,  and  since  it  could  not 
think  of  raising  the  rates  charged  to  large  users,  it  felt  bound  to 
adhere  to  its  proposals  of  1892.  So  the  matter  rested  for  a  year. 

Meanwhile  remote  rural  subscribers  were  coming  to  the  conclu- 
sion that  half  a  loaf  was  better  than  none.  Since  they  could  obtain 
neither  the  reduction  of  toll  rates  nor  the  abolition  of  mileage 
charges,  they  determined  to  secure  as  liberal  concessions  as  possible 
for  rural  subscribers  generally,  whether  to  a  public  or  a  private 
branch  exchange.  In  its  message  of  1893, 3  the  Federal  Council  had 
suggested  an  alternative  schedule  of  local  rates  for  the  benefit  of 
small  users ;  namely,  the  complete  abolition  of  the  unpaid  limit  and 
the  reduction  of  the  lump  charge  to  100  francs  the  first  year,  75 
francs  the  second,  and  50  the  third  and  each  succeeding  year. 
This  alternative  was  less  advantageous  to  originators  of  more  than 
200  local  calls  a  year  than  the  Council's  prior  proposal,  but  was 
more  favorable  to  smaller  users,  and  was  suggestive  as  indicating 
the  possibility  of  a  complete  transition  to  measured  service  rates. 
Rural  subscribers  continued  their  agitation  for  reform,4  and, 

1  Of  the  155  inter-urban  lines  operated  in  1892,  only  35  exceeded  30  kilometers  in 
length. 

2  Bundesblatt,  1893,  ii,  770.  *  Ibid.,  791. 

4  Cf .  the  Memorial  of  the  Cantonal  Government  of  Berne,  reprinted  in  the  Federal 


230  PUBLIC  OWNERSHIP  OF  TELEPHONES 

although  the  Federal  Council  in  its  message  of  1894  refused  to 
modify  its  earlier  proposals,  they  succeeded  in  forcing  the  issue 
in  the  Federal  Assembly.  The  result  was  the  passage  at  the  De- 
cember session,  1894,  of  a  second  law  for  the  purpose  of  reducing 
telephone  rates.1 

The  Assembly  held  to  the  opinion  of  the  Council  that  the  mile- 
age charges  could  not  be  reduced  without  both  injustice  to  urban 
.  subscribers  (for  the  cost  of  construction  in  rural  districts  at  that 
time  was  often  greater  than  in  urban,  since  fewer  wires  were  put 
up  on  a  single  line  of  poles)  and  danger  to  the  telephone  finances. 
But  the  proposal  for  the  complete  abolition  of  the  unpaid  limit  in 
the  schedule  of  local  exchange  rates  met  with  its  approval,  and  in 
order  not  to  lose  the  advantages  of  either  of  the  two  proposals  ad- 
vanced by  the  Federal  Council,  it  combined  them  both.  The  law 
as  finally  enacted  provided  that  subscribers  should  pay  five  cen- 
times for  each  local  call  and  that  the  lump  charge  should  be  reduced 
to  100  francs  the  first  year,  70  the  second,  and  40  the  third  and  each 
succeeding  year.  The  same  rates  were  later  extended  to  public  pay 
stations  maintained  under  guarantee  by  village  authorities,2  and 
criticism  of  Swiss  telephone  rates  vanished.3 

The  new  rate  law  went  into  effect  in  1895.  It  marked  not  only 
the  end  of  Swiss  agitation  in  respect  to  telephone  rates,  but  also 
that  of  the  transition  from  flat  rates  to  a  logical  system  of  mea- 
sured-service rates.  The  Swiss  schedule  of  1895  is  not  above  criti- 
cism. It  fails  to  make  provision  for  the  more  economical  use  of  their 
lines  by  the  large  users.  Some  reduction  of  the  message  rate  for 
such  users  would  not  appear  unreasonable,  but  has  not  yet  been 
called  for  by  the  interests  concerned.  Yet  in  its  general  features  it 
represents  a  theory  of  rate-making  which  other  countries  either 
have  adopted  after  a  delay  of  ten  or  twenty  years,  or  will  eventu- 
ally adopt.4 

Council's  Message  of  1894.  Rural  subscribers  in  Berne  were  now  content  to  ask  for 
abolition  of  the  unpaid  limit  plus  the  reduction  by  one  third  of  the  mileage  charges. 

1  Bundesgesetz,  betre/end  die  Ermassigung  der  Telephongebiihren  wm  7.  Dez.,  1894. 

a  Verordnung  betre/end  das  Tdephonwesen  vom  25.  Sept.  1895. 

3  Its  last  appearance  was  in  the  shape  of  a  petition  from  the  Swiss  Agricultural 
Society,  praying  for  the  abolition  of  mileage  charges.   This  petition  met  with  no  re- 
sponse in  the  Assembly.   Cf.  Bundesblatt,  1895,  i,  288. 

4  Cf.  Reinhard,  pp.  116-124. 


DEVELOPMENT  OF  THE  SWISS  SYSTEM  231 

The  Swiss  people  have  used  their  control  over  telephone  rates 
wisely.  Relying  upon  the  publicity  of  accounts  and  statistics  of 
operation  and  upon  popular  discussion  under  the  guidance  of  a  re- 
sponsible administration,  the  representatives  of  the  people  have 
hammered  out  a  consistent  and  scientific  schedule  of  rates.  No 
section  of  the  community  has  abused  a  dominant  position  in  the 
government  to  secure  advantages  at  the  expense  of  other  sections ; 
personal  discrimination  has  been  eliminated  without  local  discrim- 
ination being  allowed  to  take  its  place;  and  the  utmost  populari- 
zation of  the  service  consistent  with  a  sound  financial  condition 
has  been  deliberately  adopted  as  the  fundamental  aim  of  govern- 
mental telephone  rates. 

Whether  or  not  the  Federal  Assembly  was  too  bold  in  its  inter- 
pretation of  the  accounts  laid  before  it  by  the  Council,  will  be  left 
for  subsequent  experience  and  the  following  chapter  to  reveal.1  At 
the  present  moment,  it  will  suffice  to  point  out  that  the  business 
policy  pursued  by  the  Swiss  telephone  authorities,  combined  with 
the  rate  policy  adopted  by  the  representatives  of  the  people,  se- 
cured for  Switzerland  a  more  rapid  introduction  of  the  telephone 
than  took  place  anywhere  else  in  Europe  or  America.  In  1895, 
when  the  second  reformed  schedule  of  rates  went  into  effect,  Swit- 
zerland possessed  one  telephone  in  use  for  each  129  inhabitants. 
At  the  same  date  in  the  United  States,  the  companies  under  the 
control  of  the  American  Bell  Telephone  Company,  which  then  en- 
joyed an  almost  exclusive  monopoly  of  the  telephone  business,  re- 
ported 281,695  telephones  in  use,  or  one  to  about  245  inhabitants. 
Comparative  statistics  of  this  sort  are  not  to  be  interpreted  too 
narrowly,  but  so  far  as  they  contain  a  meaning,  it  is  that  the  estab- 
lishment of  the  telephone  business  by  the  Swiss  people  had  been 
distinctly  a  success.  They  had  not  avoided  mistakes,  but  they  had 
demonstrated  that  by  retaining  full  control  of  the  telephone  busi- 
ness in  their  own  hands  they  had  retained  also  the  power  promptly 
to  correct  their  mistakes. 

1  The  effect  of  the  second  reform  of  the  exchange  rates  was  to  reduce  the  average 
annual  payment  per  subscriber  almost  to  60  francs,  or  two  fifths  of  the  flat  rate  in 
force  prior  to  1890. 


CHAPTER  XIII 

FURTHER  DEVELOPMENT   OF   THE   SWISS   TELEPHONE   SYSTEM 

THE  immediate  financial  result  of  the  second  revision  of  the  local 
exchange  rates  was  favorable  beyond  all  expectations.1  In  1890, 
the  effect  of  the  partial  introduction  of  measured-service  rates  had 
been  a  falling-off  of  over  27  per  cent  in  the  number  of  local  calls  as 
compared  with  those  of  the  last  year  under  the  flat  rate.  A  similar 
falling-off  as  a  consequence  of  the  complete  introduction  of  mea- 
sured-service rates  by  the  act  of  1894  had  been  anticipated,  but  the 
annual  average  number  of  local  calls  per  telephone  actually  fell  off 
only  from  608  in  1895  to  529  in  1896,  or  by  barely  13  per  cent.2  The 
increase  in  the  number  of  new  subscribers  was  greater  than  ever 
before,  and  in  consequence  the  financial  condition  of  the  service 
was  materially  improved  by  the  second  reform  of  rates.  The  rate 
of  .amortization  of  the  fresh  capital  which  had  been  in  vested  in  the 
business  since  1890,  was  raised  from  10  to  15  per  cent,  and  in  1896 
there  still  remained  a  small  net  profit.3  This,  instead  of  being  paid 
into  the  Federal  Treasury  as  a  net  profit,  was  appropriated  to  the 
further  reduction  of  the  outstanding  indebtedness  incurred  on 
account  of  construction.  Since  the  telephone  administration  fur- 
thermore paid  4  per  cent  interest  on  all  other  advances  made  to  it 
by  the  Federal  Treasury,  the  soundness  of  its  financial  statement 
is  indisputable. 

This  healthy  condition  was  not  destined  long  to  continue.  A 
clear  understanding  of  the  telephone  policy  of  the  Swiss  govern- 
ment requires  an  explanation  of  the  circumstances  which  for  a  time 
appeared  likely  to  plunge  the  telephone  undertaking  into  chronic 
insolvency.  The  explanation  of  the  first  of  these  circumstances 
requires  a  digression  concerning  the  relations  between  the  tele- 

1  The  act  of  1894  went  into  effect  Jan.  i,  1896. 

2  Geschaftsbericht  des  Bundesrates  pro  1896.    Bundesblatt,  1897,  ii,  838. 

*  Geschaftsbericht  des  Bundesrates  pro  1893.  Bundesblatt,  1894,  i,  748.  Ibid., 
pro  1895.  Bundesblatt,  1896,  ii,  680. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM         233 

phone  administration  and  the  public  in  the  matter  of  rights  of 
way  for  its  lines  and  also  concerning  its  relations  with  other  elec- 
trical undertakings. 

In  1888  the  Federal  Supreme  Court  decided  that  the  telephone 
authorities  had  no  right  to  make  use  of  private  property  for  the 
support  of  telephone  lines  without  compensation  to  the  owners.1 
This  decision,  it  was  calculated,  if  acted  upon  by  every  householder 
in  the  towns  and  cities,  would  increase  the  cost  of  service  in  Such 
places  by  15  francs  per  telephone  per  annum.  Two  years  earlier, 
the  municipal  authorities  in  Zurich  challenged 2  the  assumed  right 
of  the  telephone  administration  to  locate  a  cable  under  the  public 
ways  without  their  permission.  The  telephone  administration 
claimed  that  it  had  that  power  under  the  act  conferring  upon  it  the 
monopoly  of  the  telegraph  business.  But  in  view  of  the  different 
circumstances  governing  the  construction  of  telegraph  and  of  tele- 
phone lines,  the  claim  was  doubtful,  and  the  administration  was 
glad  to  compromise  with  the  local  authorities.  The  latter  con- 
sented to  the  laying  of  the  cable,  with  the  understanding  that  they 
might  at  any  time  order  its  relocation,  provided  that  they  paid 
one  half  of  the  costs.  Similar  conflicts  of  interest  were  beginning 
to  arise  in  all  the  larger  Swiss  cities.  Thus  in  1889,  in  Basel,3  the 
municipal  authorities  refused  their  authorization  for  the  use  of 
their  streets  for  underground  cables,  unless  they  were  permitted  to 
prescribe  the  location.  Their  purpose  was  to  preserve  a  free  hand 
for  dealing  with  the  location  of  their  own  contemplated  electric 
lighting  lines.  This  controversy  was  not  settled  until  the  follow- 
ing year,  when  the  telephone  authorities  received  the  desired  loca- 
tion on  condition  that  they  raised  no  objections  to  the  later  utili- 
zation of  the  same  ways  by  the  local  authorities  for  their  electrical 
conductors. 

This  uncertainty  concerning  legal  relations  to  the  public  was  not 
only  a  great  inconvenience  to  the  telephone  administration,  but 
seriously  perturbed  the  computations  on  the  basis  of  which  it  was 
just  then  endeavoring  to  reform  its  system  of  rates.  Hence,  at  the 

1  Geschaflsbericki  des  Bundesrates  pro  1888.    Bundesblatt,  1889,  ii,  283. 

2  Geschaftsbericht  der  Stadt  Zurich  pro  1886,  pp.  12-14. 

8  Verwaltungsbericht  Basd-Stadt  pro  1889,  vi,  2.     Ibid.,  pro  i8go,  vi,  3. 


234  PUBLIC  OWNERSHIP  OF  TELEPHONES 

same  time  that  the  Federal  Council  announced  its  suggestions  for 
the  reform  of  the  rates,  it  published  a  proposal  for  the  determina- 
tion of  the  relations  between  the  public  and  the  telephone  admin- 
istration.1 

The  prime  purpose  of  this  bill  was  to  secure  to  the  telephone  ad- 
ministration power  to  erect  its  lines  upon  alien  property.  The  law 
of  December  23,  1851,  concerning  the  establishment  of  a  telegraph 
system,  provided  that  the  federal  authorities  should  arrange  with 
the  cantons  for  rights  of  way  over  cantonal  and  municipal  pro- 
perty. In  practice  the  cantons  had  always  been  willing  to  grant 
rights  of  way  gratis,  and  until  the  coming  of  the  telephone  there 
had  been  no  questions  raised.  The  Federal  Council  now  proposed 
that  this  practice  should  be  authorized  by  law  for  both  telegraph 
and  telephone. 

At  the  same  time  the  Council  proposed  to  regulate  the  relations 
between  the  telephone  and  the  power-circuit  electrical  undertak- 
ings, which  could  even  then  be  descried  looming  ominously  on  the 
horizon.  The  danger  to  the  weaker  installation  from  induction 
and  direct  contact  with  the  stronger  was  already  understood,  and 
though  as  yet  the  application  of  powerful  electrical  currents  to  in- 
dustrial purposes  in  Switzerland  was  scarcely  begun,  the  conver- 
sion of  the  Alpine  country's  numerous  waterfalls  into  mighty  elec- 
trical power  stations  had  become  the  fair  dream  of  many  a  native 
engineer  of  imagination  and  patriotism.  Sharing  these  high  hopes 
and  sincerely  desirous  of  hastening  the  day  of  their  realization,  the 
Federal  Council  could  not  fail  to  foresee  difficulties  for  its  telephone 
system.  So  far  as  possible,  it  declared,  the  conductors  of  large  cur- 
rents should  be  placed  at  a  safe  distance  from  the  telephone  lines. 
But  in  some  cases  this  would  not  be  possible  except  at  such  a  heavy 
cost  as  would  tend  to  impede  the  development  of  the  electrical  in- 
dustry. Hence  the  Federal  Council  recommended  that  promoters 
of  power-circuit  undertakings  be  required  to  construct  their  plants, 
so  far  as  electrical  science  would  allow,  in  such  a  way  as  to  create 
the  minimum  of  disturbance  in  telephone  circuits,  promising,  for 

1  Botscltaft  des  Bundesrates  an  die  Bundesversammlung  uber  ein  Bundesgesetz  betref- 
fend  die  Einrichtung  von  elektrischen  Linien  (vom  13.  Nov.  1888).  Bundesblatt,  1888, 
iv,  680. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM        235 

its  part,  that  under  exceptional  circumstances  the  government 
would  waive  its  right  to  forbid  the  construction  of  perturbing  con- 
ductors in  the  neighborhood  of  its  telephone  lines.  But  the  gov- 
ernment would  require  compensation  for  damages  occurring  to  its 
property  in  consequence  of  such  a  renunciation  of  its  rights.  In 
order  to  insure  the  observance  of  their  obligations  towards  the  tele- 
phone authorities,  the  Council's  bill  stipulated  that  the  promoters 
of  power-circuit  undertakings  should  give  notice  of  projected  works, 
and  secure  the  approval  of  the  Council  for  their  plans  to  protect 
the  telephone  lines. 

The  publication  of  this  message  marks  the  opening  of  a  struggle 
in  Switzerland  similar  to  that  which  took  place  in  Germany.  Elec- 
trical engineers  and  industrial  promoters  generally  saw  at  once 
that  the  acceptance  by  the  Federal  Assembly  of  the  Council's  pro- 
posals would  deliver  the  power-circuit  undertakings  defenseless 
into  the  hands  of  the  telephone  authorities.  However  generous 
might  be  the  instincts  of  the  Federal  Councillors,  the  paid  officials 
at  the  head  of  the  telephone  undertaking  would  be  bound  to  con- 
sider first  the  interests  of  the  particular  undertaking  committed  to 
their  care,  and  only  secondarily  could  they  be  expected  to  give  heed 
to  those  of  the  electrical  industry  at  large.  The  Swiss  Association  of 
Engineers  and  Architects  promptly  came  to  the  front  with  a  me- 
morial in  support  of  an  alternative  bill  of  its  own,  and  the  local 
authorities  of  the  leading  Swiss  cities  and  of  the  cantons  in  which 
water  power  was  abundant,  who  were  even  then  enjoying  the  pro- 
spect of  becoming  the  chief  promoters  of  electrical  undertakings  in 
Switzerland,  lent  to  the  Association  their  powerful  support.1 

The  effect  of  this  remonstrance  against  the  proposals  of  the  Fed- 
eral Council  was  to  bring  about  a  careful  and  thorough  discussion 
of  the  bill  in  the  Federal  Assembly.  Both  the  Assembly  and  the 
Council  showed  a  disposition  to  meet  the  remonstrants  at  least 
halfway,  and  the  final  form  of  the  ensuing  compromise  was  sug- 

1  Geschaftsbericht  der  Stadt  Zurich  pro  1889,  p.  9;  Venvallungsbericht  Basel-Stadt  pro 
1889,  i,  3,  etc.  The  city  of  Geneva  seems  to  have  been  the  leader  in  this  remonstrance, 
although  its  published  reports  contain  no  record  of  its  part  in  the  affair.  All  these 
and  many  smaller  cities  were  already  planning  the  construction  of  municipal  electrical 
undertakings.  The  memorial  of  the  Swiss  Architects'  and  Engineers'  Association 
is  reprinted  in  the  protocol  of  the  debates  in  the  Federal  Assembly. 


236  PUBLIC  OWNERSHIP  OF  TELEPHONES 

gested  by  Federal  Councillor  Welti,  in  whose  department  the  re- 
sponsibility for  things  electrical,  so  far  as  the  Confederacy  was 
concerned,  was  vested. 

The  law  of  June  26,  1889,  provided  that  the  promoters  of  power- 
circuit  undertakings  should  so  construct  their  systems  as  not  to 
disturb  present  or  future  telephone  lines.  The  telephone  adminis- 
tration, on  its  part,  was  bound  to  take  all  reasonable  precautions 
to  prevent  the  disturbance  of  its  lines.  If  the  two  parties  could  not 
agree  on  the  measures  of  protection  which  each  was  to  take  in  a 
given  case,  the  final  decision  should  rest  with  the  Federal  Council, 
after  it  had  taken  the  opinion  of  a  disinterested  expert.  The  costs 
should  be  apportioned  between  the  parties  by  agreement,  in  de- 
fault of  which  the  Federal  Court  should  determine  the  share  of 
each  party  according  to  the  following  principles :  — 

(1)  the  cost  of  special  works  required  on  a  later  installation  for 
the  protection  of  an  earlier  one  must  be  borne  by  the  later; 

(2)  the  cost  of  alterations  in  earlier  lines  to  avoid  injury  by  a 
later  installation,  provided  the  earlier  was  itself  a  technically  sound 
installation,  must  be  borne  by  the  later,  but  an  exception  was  made 
in  favor  of  later  electrical  undertakings  serving  a  public  purpose 
(i.  e.,  public  lighting  plants,  etc.);  and 

(3)  in  other  cases,  each  undertaking  must  bear  the  costs  aris- 
ing on  its  own  installation. 

The  telephone  authorities,  but  not  other  electrical  promoters  as 
desired  by  the  Swiss  Engineers'  and  Architects'  Association,  were 
given  a  right  of  way  without  charge  over  public  and  private  pro- 
perty, but  were  required  to  make  due  compensation  for  damages 
committed  in  the  course  of  construction  and  for  any  prejudice  that 
might  be  created  to  the  owners  of  private  property  by  the  exist- 
ence of  lines  upon  their  land  or  buildings. 

In  this  form  the  act  of  1889  appeared  to  anticipate  all  the  con- 
tingencies that  could  be  foreseen  at  that  stage  of  electrical  enter- 
prise. Both  sides  appeared  satisfied  with  the  termination  of  the 
discussion  in  the  Assembly,  and  in  fact  for  several  years  it  met  the 
needs  of  the  situation  admirably.  But  the  law  contained  three 
defects.  It  did  not  anticipate  the  eventual  necessity  of  the  intro- 
duction of  metallic  circuits  in  all  urban  exchange  systems;  it  pro- 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM        237 

vided  no  adequate  machinery  for  its  enforcement ;  and  it  created  a 
strong  incentive  for  the  promoters  of  power-circuit  undertakings 
to  wrangle  with  the  telephone  administration  concerning  which 
among  these  undertakings  should  undergo  alterations  for  the  pro- 
tection of  the  telephones.1 

Electrical  street  railways  were  the  particular  variety  of  electri- 
cal undertaking  that  was  destined  to  prove  a  source  of  trouble  to 
the  telephone.  In  1889  only  one  of  the  Swiss  street  railways -was 
operated  by  electricity  (the  line  on  the  shore  of  Lake  Geneva  from 
Montreux  to  Chillon),  and  this  road  employed  a  system  of  trac- 
tion which  so  completely  insulated  the  current  from  the  earth  that 
no  perturbing  influence  was  perceptible  in  the  neighboring  tele- 
phone circuits.2  At  that  time  steam,  cable,  or  compressed  air 
seemed  as  likely  as  electricity  to  constitute  the  motive  power  for 
the  urban  transportation  of  the  future.  But  in  18933  the  first  trol- 
ley road  was  opened  at  Zurich;  in  1894,  trolley  roads  were  opened 
in  Basel  and  Geneva;  and  in  1895*  the  troubles  of  the  telephone 
administration  really  began  with  the  opening  of  a  trolley  road  at 
Lugano  without  previous  notice  to  the  Federal  Council.  In  the 
earlier  instances,5  the  main  telephone  lines  were  put  underground 
in  cables,  or  fuses  were  inserted  at  the  terminals  of  the  lines  in  the 
exchange,6  and  a  portion  of  the  expense  was  borne  by  the  street 
railway  promoters,  but  at  Lugano  the  promoters  proceeded  without 
the  knowledge  of  the  telephone  authorities,  with  the  result  that  the 
local  exchange  system  was  completely  paralyzed  by  the  opening 
of  the  road7  and  had  to  be  reconstructed  with  metallic  circuits. 
Shortly  afterwards,  the  city  of  Zurich  purchased  all  the  old  horse 
railways  within  its  limits  and  proceeded  to  transform  them  into 
electrical  railways.  The  municipal  authorities  made  an  agreement 8 
with  the  telephone  administration  by  virtue  of  which  the  disposi- 

1  Cf.  Verordnung  des  Bundesrates  iiber  die  Erstellung  von  Telegraph-  und  Telephon- 
linien  (vom  7.  Dez,,  1889);  A.  S.  n.  F.,  xi,  324. 

Geschaftsbericht  des  Bundesrates  pro  1892.   Bundesblatt,  1893,  ii,  220. 
Ibid.,  pro  1893.   Bundesblatt,  1894,  i,  755.  v 
Ibid.,  pro  1895.   Bundesblatt,  1896,  ii,  688. 
Ibid.,  pro  1894.   Bundesblatt,  1895,  ii,  524. 
Ibid.,  pro  1894.  Bundesblatt,  1895,  ii,  531. 

7  Ibid.,  pro  1896.   Bundesblatt,  1897,  ii,  852. 

8  Geschaftsbericht  der  Stadt  Zurich  pro  1898,  p.  225. 


238  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tion  of  the  aerial  telephone  wires  to  be  affected  by  the  projected  trol- 
ley system  was  arranged,  but  the  division  of  the  costs  was  reserved 
for  later  determination. 

The  telephone  administration  was  reluctant  to  assume  all  the 
burden  of  the  transformation  of  urban  aerial  lines  with  earth 
return  into  underground  metallic  circuits,  since  the  necessity  for 
the  transformation  was  only  partially  the  result  of  the  development 
of  the  telephone  system  itself.  Even  assuming  that  ultimately  the 
transformation  would  have  been  inevitable  without  the  develop- 
ment of  the  power-circuit  undertakings,  it  was  undeniable  that  the 
rapid  development  of  that  branch  of  the  electrical  industry  had 
contributed  largely  to  the  precipitation  of  the  problem.  Conse- 
quently the  telephone  administration  felt  justified  under  the  law  of 
1889  in  asking  the  latter  interests  to  assume  a  portion  of  the  cost. 
At  the  same  time  the  administration  was  conscious  of  the  danger 
of  delay,  and  proceeded  with  the  transformation  without  waiting 
for  a  solution  of  the  vexed  problem.1  By  the  end  of  1898,  30,0x30 
kilometers  out  of  the  total  of  85,0x00  kilometers  of  exchange  line 
were  metallic  circuits,  and  an  even  larger  proportion  of  the  ex- 
change wire  was  underground.2  The  cost  of  doubling  the  local 
lines  and  putting  them  underground  amounted  by  the  end  of  1898 
to  nearly  six  million  francs,  of  which  2.5  per  cent  had  been  contrib- 
uted by  the  power-circuit  interests.3  Yet  the  work  was  not  half 
done. 

In  this  same  year  events  occurred  which  showed  that  the  process 
of  transformation  could  not  be  retarded  until  the  division  of  the 
costs  should  be  determined,  but  that  the  administration  must  com- 
plete the  work  as  quickly  as  possible,  whatever  the  expense.  In 
Zurich,  a  telephone  wire  came  in  contact  with  a  trolley  wire,4  and 
owing  to  a  defective  fuse  (or  the  lack  of  one)  at  the  "central,"  the 
exchange  offices  and  all  the  valuable  equipment  were  destroyed  by 
fire.  Exchange  operations  were  consequently  interrupted  for  weeks. 
In  Basel,  the  same  thing  happened,  the  telephone  wire  fell  to  the 

1  Geschdftsbericht  des  Bundesrates  pro  1896.   Bundesblatt,  1897,  ii,  852. 

2  Ibid.,  pro  1899.   Bundesblatt,  1900,  ii,  352. 

*  Stenographisches  Bulletin  der  Bundesversammlung,  1900,  p.  604. 
4  Botschaft  des  Bundesrates  an  die  Bundesversammlung  betreffend  die  Finanzlage 
.des  Bundes  (vom  26.  Mai,  1899).  Bundesblatt,  1899,  iii,  293,  at  p.  258. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM        239 

street,  and  a  bystander  was  killed. l  In  La  Chaux-de-Fonds,  a  heavy 
snowstorm  caused  the  telephone  wires  to  fall  on  the  electric  light- 
ing conductors,2  with  the  result  that  the  lighting  plant  had  to  be 
shut  down  until  the  telephone  wires  could  be  removed.  In  each 
case  the  promoter  of  the  power-circuit  undertaking  was  the  local 
municipal  government.  The  result  of  all  these  catastrophes  was 
that  the  telephone  administration  determined  to  complete  the 
transformation  of  its  urban  exchange  systems  as  rapidly  as  possible, 
and  then  to  recover  what  it  could  from  the  disturbing  power- 
circuit  undertakings. 

The  more  vigorous  policy  of  reconstruction  was  inaugurated  in 
1898,  and  in  the  following  year  the  government's  proposals  for 
financing  the  work  of  reconstruction  were  published.3  The  mes- 
sage of  the  Federal  Council  proclaimed  the  necessity  of  a  more 
stringent  supervision  over  electrical  undertakings  of  all  sorts  by 
the  federal  authorities,  and  of  the  complete  insulation  of  telephone 
circuits  from  the  earth  in  order  to  protect  them  from  the  pernicious 
influence  of  power-circuit  undertakings.  In  the  cities  the  intro- 
duction of  metallic  circuits  alone  would  not  suffice  ;  the  lines 
would  have  to  be  put  underground.  The  Federal  Council  conceded 
all  these  technical  points  to  the  representatives  of  the  power- 
circuit  interests,  and  the  only  question  in  its  mind  concerned  the 
apportionment  of  the  expense  of  the  transformation.4  Neverthe- 
less, the  telephone  management  was  opposed  to  the  unconditional 
surrender  of  the  earth  to  the  power-circuit  branch  of  the  electrical 
industry,  and  asserted  that  much  might  be  accomplished  by  the 
more  careful  insulation  of  power-circuit  conductors  with  a  view 
to  the  continuation  of  the  joint  use  of  the  earth  by  both  branches 
of  the  industry.  The  telephone  management  laid  especial  stress 
on  the  consideration  that  the  Swiss  rates  were  adjusted  to  the  old 
method  of  telephony  which  required  the  use  of  the  earth  for  the 
return  of  the  currents,  and  that  it  could  not  make  both  ends  meet 

1  Verwaltungs-Bericht  Basel-Stadt,  1898,  iv,  40. 

1  Sckweizerisches  Zentralblatt  fiir  Staats-  und  Gemeindeverwdtung,  iii,  p.  167. 

1  Botschaft  des  Bundesrates  an  die  Bundesversammlung  iiber  den  Erlass  eines  Gesetzes 
belreffend  die  elektrischen  Schwach-  und  Starkstromanlagen  (vont  5.  Juni,  iSgp). 
Bundesblatt,  1899,  "'»  786-890. 

4  The  Federal  Council  referred  to  the  discussion  of  the  same  question  in  Germany. 


240  PUBLIC  OWNERSHIP  OF  TELEPHONES 

if  it  were  forced  to  go  over  unaided  to  a  more  expensive  mode  of 
conducting  the  business.  Unless  the  other  electrical  interests  could 
be  made  to  pay  a  greater  share  of  the  cost  of  transformation  than 
they  had  paid  in  the  past  (2.5%),  the  early  completion  of  the 
work  could  be  secured  only  by  the  sacrifice  of  the  financial  sound- 
ness of  the  telephone  undertaking,  or  by  the  raising  of  the  rates. 

At  that  time  (1899),  electric  street  railways  were  in  operation 
or  under  construction  in  sixteen  cities  (i.  e.,  more  than  the  total 
number  of  cities  of  over  10,000  population),  and  to  complete  the 
transformation  in  these  cities  alone  would  cost  eleven  million  francs. 
Such  a  sum  would  have  more  than  doubled  the  existing  capitali- 
zation of  the  Swiss  telephone  undertaking;  that  is,  the  sum  of  the 
advances  made  out  of  the  Federal  Treasury  for  fresh  construction 
since  1890,  less  the  share  of  the  profits  paid  on  account  of  amorti- 
zation (10%  of  the  advances  until  1895,  then  15%  plus  the  further 
surplus).  On  account  of  the  savings  in  charges  for  maintenance 
which  could  be  expected  from  the  transformation,  the  telephone 
management  calculated  that  it  could  finance  the  work  if  it  were 
spread  over  a  period  of  ten  years;  but  if  the  contention  of  the 
power-circuit  interests,  namely,  that  the  entire  Swiss  system  be 
rebuilt  at  once  at  the  expense  of  the  government,  should  be  accepted 
by  the  Federal  Assembly,  the  immediate  result  would  be  an  enor- 
mous deficit.  The  Federal  Council,  unless  it  should  abandon  its 
purpose  to  complete  the  reconstruction  of  the  telephone  system, 
was  forced  to  choose  between  the  alternatives  of  raising  the  rates 
or  throwing  a  portion  of  the  cost  of  the  transformation  upon  the 
power-circuit  interests,  who  were,  for  the  most  part,  municipal  and 
cantonal  governing  authorities. 

The  Federal  Council  chose  the  latter  alternative,  and  planned 
such  a  revision  of  the  law  of  1889  as  would  enable  the  work  of 
transformation  to  be  carried  out  as  a  joint  undertaking  by  all  the 
interests  concerned.  With  this  end  in  view,  it  proposed  that  the 
provisions  of  the  law  of  1889  governing  the  apportionment  of  costs 
between  conflicting  electrical  interests  should  be  repealed.  The 
principle  that  the  earlier  installation  should  have  a  superior  claim 
to  consideration  was  declared  to  be  unsound.  The  questions  arising 
out  of  the  necessity  of  protecting  weak  currents  from  strong  ones 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM        241 

should  be  decided  solely  with  regard  to  the  efficacy  of  the  measures 
proposed  to  be  taken,  and  the  division  of  the  costs  should  not  be 
allowed  to  affect  the  matter.  Hence  the  Federal  Council  suggested 
that  the  law  be  so  amended  as  to  insure  the  most  effective  separa- 
tion of  strong  and  weak  currents,  regardless  of  the  proprietorship 
of  the  conductor  on  which  special  work  might  have  to  be  done,  and 
that  the  expense  should  be  shared  in  a  fixed  proportion  between  the 
interests  concerned.  As  a  fair  proportion  of  the  joint  expense  for 
the  telephone  undertaking  to  bear,  the  Federal  Council  suggested 
one  third. 

In  order  to  prevent  the  recurrence  of  the  unprofitable  disputes 
which  were  arising  under  the  existing  law  in  regard  to  the  choice  of 
the  conductor  on  which  special  works  for  the  protection  of  a  tele- 
phone circuit  should  be  performed,  it  proposed  the  creation  of  a 
special  electro-technical  commission.  To  this  commission,  com- 
posed of  seven  representative  experts  to  be  designated  by  the  Fed- 
eral Council  upon  the  recommendation  of  the  various  sections 
of  the  electro-technical  industry,  should  be  intrusted  the  task  of 
advising  the  Federal  Council,  upon  which  should  rest  the  final  re- 
sponsibility for  the  drawing  up  and  periodical  revision  of  suitable 
regulations  to  govern  the  relations  of  the  various  electrical  under- 
takings to  one  another.  The  Federal  Council,  however,  specifi- 
cally included  under  the  head  of  works  to  be  carried  out  as  joint  un- 
dertakings by  all  the  electrical  interests,  not  only  the  relocation 
of  telephone  lines  threatened  by  a  projected  electric  railway,  but 
also  the  general  substitution  of  metallic  circuits  for  aerial  single 
wires  with  earth  return. 

The  publication  of  this  message  was  far  from  allaying  the  criti- 
cism of  the  telephone  administration  in  electro- technical  circles.1 

1  Before  the  publication  of  the  message,  a  commission  of  experts  was  appointed 
jointly  by  the  Federal  Council  and  the  Swiss  Electro-technical  Union  —  an  associa- 
tion of  electrical  manufacturing  and  operating  corporations,  many  of  the  latter 
being  municipal  or  cantonal  authorities  —  whose  findings  were  reported  in  the 
Protokoll  der  Schlusssitzung  der  experten  Kommission,  1898,  126  pp.  The  telephone 
administration  had  stated  its  case  in  a  memorial  entitled  Das  Verhaltnis  der  Stark- 
und  Schwachstromanlagen,  1899,  43  pp.;  and  the  legal  aspects  of  the  question  had  been 
fully  discussed  by  Professor  Meili  in  Schweizerische  Zeitfragen,  Heft  29,  Die  elektrischen 
Stark-  und  Schwachstromanlagen,  and  in  the  reply  to  the  same  by  Dr.  A.  Denzler. 
After  the  publication  of  the  message,  Professor  Meili  wrote  another  pamphlet, 


242  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  Federal  Assembly  inclined  in  favor  of  the  power-circuit  inter- 
ests, and  although  the  parliamentary  struggle  was  protracted  by 
the  efforts  of  the  energetic  Herr  Zemp,  the  Federal  Councillor,  in 
whose  department  were  vested  the  postal  and  telephone  services, 
as  well  as  the  newly  nationalized  railroads,  the  ultimate  outcome 
could  hardly  be  doubtful.1  In  1901,  after  prolonged  negotiations, 
the  telephone  administration  made  a  special  arrangement2  with 
the  local  authorities  at  Basel  by  which  the  latter  paid  only  one 
third  of  the  costs  of  protecting  the  telephone  against  the  municipal 
street  railway  and  the  administration  paid  two  thirds.  In  the  fol- 
lowing year  (1902),  the  parliamentary  struggle  was  terminated  by 
the  law  of  June  24.  By  this  law  the  entire  cost  of  the  introduction 
of  metallic  circuits  was  thrown  on  the  shoulders  of  the  telephone 
administration,  and  only  the  costs  of  relocating  aerial  lines  dis- 
placed by  trolley  lines  were  divided  between  the  telephone  admin- 
istration and  the  power-circuit  interests  in  the  proportion  origi- 
nally suggested  by  the  Federal  Council.  The  latter 's  proposal  of  a 
permanent  electro-technical  commission  of  seven  representative 
experts  to  advise  the  Federal  Council  in  the  adjustment  of  the 
detailed  relations  between  the  conductors  of  strong  and  weak 
currents  was  accepted,  but  so  modified  that  the  power-circuit 
interests  should  secure  the  major  share  of  representation. 

This  solution  of  the  problem  must  be  regarded  as  an  excellent 
/  one.  The  power-circuit  undertakings  collectively  far  exceeded  the 
telephone  in  importance  to  the  public  at  large,  and  it  was  mani- 
festly contrary  to  the  public  welfare  that  its  interest  in  its  tele- 
phone undertaking  should  be  allowed  to  outweigh  its  greater, 
though  less  direct,  interest  in  other  electrical  undertakings.  The 
method  of  apportioning  the  costs  of  necessary  relocations  of  tele- 
phone lines  was  arbitrary,  yet  a  fixed  apportionment  of  cost,  even 
though  arbitrary,  is  more  easily  borne  by  industrial  interests  than  a 

Schweizerische  Zeitfragen,  Heft  30,  Der  Schweizerische  Gesetzentwurf  ilber  Stark-  und 
Schwachstromanlagen,  and  memorials  were  handed  in  to  the  Federal  Council  by  the 
Swiss  Electro-technical  Union,  by  the  Railway  Association,  and  by  a  number  of 
promoters  of  power-circuit  undertakings. 

1  Amtliches  stenographisches  Bulletin  der  schweizerischen  Bundesversammlung, 
1900,  pp.  555  ff;  1901,  pp.  248  S.,  pp.  498  ff.,  PP-  536  ff. 

»  Verwaltungsbericht  Basel-Stadt,  1899,  iv,  43;  1900,  iv,  42;  1901,  iv,  42. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM        243 

more  rational  but  uncertain  apportionment.  The  condemnation 
of  the  telephone  administration  to  pay  all  the  costs  of  introducing 
metallic  circuits  was  undoubtedly  fair,  but  it  had  the  unfortunate       v 
effect  of  putting  an  unexpectedly  heavy  strain  on  the  finances  of 
the  telephone  undertaking. 

The  second  cause  of  the  failure  of  the  rate  act  of  1894  to  keep 
the  telephone  finances  on  a  permanently  sound  footing  was  inter- 
nal. It  has  been  already  shown  that  the  immediate  effect  of  the 
successive  reforms  of  the  rates  in  1889  and  1894  had  been  to  give 
an  unprecedented  impulse  to  the  expansion  of  the  telephone  busi- 
ness. The  attractiveness  of  the  rates  brought  fresh  subscribers  to 
the  system  within  the  first  two  or  three  years  succeeding  the  final 
reform,  at  a  more  rapid  rate  than  could  be  maintained  after  the  ex- 
ceptional impulse  had  exhausted  itself.  Hence  during  the  later 
nineties  the  annual  increase  steadily  diminished.1  The  official 
constructing  engineers  and  traffic  managers,  who  were  anticipat- 
ing the  maintenance  of  the  rapid  growth  of  the  previous  years, 
planned  the  necessary  extensions  of  plant,  and  the  Federal  As- 
sembly approved  the  necessary  appropriations.  But  the  universal 
expectations  were  disappointed.  The  falling-off  in  the  rate  of  fresh 
accessions  to  the  system  caused  a  decline  in  the  average  annual 
payment  per  subscriber  and  a  shortage  in  the  anticipated  number 
of  subscriptions.  Hence,  during  several  years  from  1898  on,  the 
operating  receipts  regularly  fell  short  of  the  budgetary  estimates. 
At  the  same  time  the  extraordinary  increase  of  capitalization,  and 
consequently  of  fixed  charges,  caused  by  the  conflict  with  the 
power-circuit  undertakings,  brought  it  to  pass  that  the  annual 
expenditures  regularly  exceeded  the  estimates.  In  the  year  1899, 
a  deficit  of  over  one  million  francs  appeared.2 

1  Year   1896  New  Exchanges    27  New  Subscribers    4,555 

"       i«97  "  "  24  "  "  3,756 

"         1898  "  12  3,072 

1  Botschaft  des  Bundesrales  an  die  Bundesversammlung  belreffend  die  Finanzlage  des 
Bundes  (vom  26.  Mai,  1899}.  Bundesblatt,  1899,  iii,  293.  Cf.  also  the  annual  re- 
ports of  the  telephone  administration  for  each  year,  which  are  printed  in  Geschafts- 
berichte  des  Bundesrates  along  with  the  other  reports  of  the  activities  of  the  postal 
and  railway  department.  See  esp.  Bundesblatt,  1899,  ii,  370;  1902,  ii,  618;  1903, 
ii,  397;  and  Stenographisches  Bulletin  des  Bundesversamtnlung,  1900,  p.  616,  state- 
ment of  Herr  Zemp. 


244  PUBLIC  OWNERSHIP  OF  TELEPHONES 

In  the  following  year,  to  the  continued  and  even  intensified 
operation  of  the  factors  already  pointed  out  was  added  another, 
the  automatic  increase  of  wages  in  the  telegraph  and  telephone  ser- 
vice by  virtue  of  the  general  salaries  act  of  1897.  This  act  had 
reclassified  the  federal  civil  service,  established  maximum  and 
minimum  rates  in  each  branch  of  the  service,  and  provided  for  the 
regular  promotion  of  all  employees  of  good  standing  at  intervals 
of  three  years  by  successive  stages  from  the  minimum  to  the  maxi- 
mum for  their  respective  classes.  The  first  interval  of  three  years 
terminated  in  1900.  The  effect,  so  far  as  the  telephone  business 
was  concerned,  was  a  general  increase  of  wages  and  salaries  in  the 
face  of  vanished  profits.  The  general  salaries  act  in  itself  was 
unquestionably  commendable,  but  its  operation  at  that  particular 
moment  served  to  increase  the  discomfiture  of  the  telephone 
administration. 

The  deficits  increased  each  year  until  1902.  That  was  a  year  of 
general  commercial  depression  throughout  all  Europe.  In  Switz- 
erland it  was  also  the  fiftieth  year  of  the  existence  of  the  state 
telegraphs.  In  a  memorial1  published  on  the  occasion  of  the  anni- 
versary, the  Swiss  telephone  authorities  discussed  among  other 
matters  the  financial  plight  of  their  undertaking  and  its  prospects 
for  the  future.  The  prime  cause  of  the  crisis  in  its  affairs  was  de- 
clared to  be  the  disproportionate  increase  of  fixed  charges  in  the 
preceding  half-decade  as  compared  with  the  increase  of  business. 
Hence  a  general  level  of  rates,  calculated  with  a  view  to  the  conduct 
of  the  business  by  less  expensive  methods,  had  for  the  time  being 
proved  inadequate  to  meet  the  altered  situation. 

In  the  December  session,  1901,  the  Federal  Assembly  requested 
an  explanation  of  the  unprofitable  turn  of  telephone  affairs  and 
suggestions  for  a  remedy.  The  telephone  administration  in  reply 
proffered  two  proposals:  (i)  to  raise  the  rates;  and  (2)  to  reduce 
the  fixed  charges  by  deducting  from  the  capital  to  be  amortized  the 
value  of  the  plant  (i.  e.,  its  cost  of  reproduction  less  depreciation). 
The  latter  of  these  alternatives,  provided  the  maintenance  of  the 

1  Das  Telegraph-  und  Telephonwesen  in  der  Schweiz  von  1852  bis  1902.  Festschrift 
auf  das  fiinfzigjahrige  Jubilaum  der  Schweizerischen  Telegraphenverwaltung.  Her- 
ausgegeben  von  der  Schweizerischen  Telegraphen-Direktion.  Berne,  1902,  p.  204. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM        245 

plant  was  well  provided  for,  as  was  in  fact  the  case,  would  have 
been  the  ordinary  commercial  practice.  The  Swiss  policy,  how- 
ever, was  not  to  build  up  as  large  a  paying  investment  of  capital 
as  possible,  but  to  own  its  undertaking  clear.  Hence  it  resolutely 
adhered  to  the  policy  of  repaying  each  year  as  large  a  portion 
as  possible  of  the  desired  15%  of  the  capital,  and  stated  the 
amount  by  which  it  fell  short  of  the  required  sum  for  amortization 
as  deficit.  This  made  the  reported  deficit  appear  much  worse  than 
it  really  was,  for  15%  per  annum  was  a  much  higher  rate  of 
amortization  than  was  required  to  accord  with  the  ordinary  prac- 
tice in  the  telephone  business.  At  the  time  the  telephone  admin- 
istration made  these  proposals,  the  Federal  Council  was  disin- 
clined to  give  effect  to  them  until  the  definite  establishment  of  the 
financial  relations  between  the  telephone  and  the  power-circuit 
electrical  interests.  Although  that  matter  was  soon  determined 
adversely  to  the  telephone,  the  Federal  Council  was  still  unwilling 
to  abandon  its  financial  and  rate  policies.  Already  by  a  relentless 
pruning  of  expenditures  for  fresh  construction,  and  the  normal, 
if  slow,  increase  of  connections,  the  margin  between  income  and 
outgo  was  beginning  to  diminish,  and  it  could  foresee  that  with 
the  lapse  of  time  the  continuance  of  the  policy  of  economy,  in  the 
absence  of  the  creation  of  fresh  unexpected  liabilities  such  as  that 
created  by  the  introduction  of  metallic  circuits,  would  in  itself 
suffice  to  restore  the  equilibrium  of  the  telephone  undertaking.1 

In  1903  the  deficit  was  greatly  diminished.  The  transforma- 
tion to  metallic  circuits  was  nearly  completed  in  the  forty-eight 
largest  exchange  systems,  and,  since  the  most  urgent  work  was  fin- 
ished, the  rate  of  reconstruction  could  be  slackened.  The  average 
income  per  subscriber  and  the  rate  at  which  new  accessions  to  the 
system  were  received  began  to  increase.  In  1904  the  deficit  was 
still  further  reduced,  and  in  1905  it  disappeared  altogether.  The 
rate  of  amortization  in  that  year  exceeded  15%  for  the  first 
time  since  1897,  an<3  the  capitalization,  which  had  actually  been 
diminished  between  1902  and  1905,  was  less  by  nearly  five  million 

1  Bericht  der  Kommission  des  Nationalrates  iiber  die  Geschaftsfiihrung  des  Bundes. 
jahres  im  Jahre  igoi  (vom  26.  Mai,  1902).  Bundesblatt,  1902,  Hi,  564.  Gcschafts- 
bericht  des  Bundesrates  pro  ipoj.  Bpndesblatt,  1904,  ii,  533. 


246  PUBLIC  OWNERSHIP  OF  TELEPHONES 

francs  than  the  estimated  value  of  the  productive  plant.  In  1906 
the  demand  for  telephone  facilities  had  so  far  overtaken  the  sup- 
ply that  the  capitalization  had  to  be  increased  once  more  to  pro- 
vide funds  for  the  needed  fresh  construction. 

This  financial  episode  is  almost  unique  in  the  history  of  ^te- 
lephony. In  almost  all  other  countries,  the  transformation  of 
single-wire  telephone  systems  to  metallic  circuits  required  a  re- 
adjustment of  the  telephone  finances,  in  order  to  avoid  a  lowering 
of  the  standard  of  service.  In  Switzerland  the  standard  of  service 
was  maintained  to  the  satisfaction  of  the  public,  and  at  the 
same  time  the  reconstruction  was  consummated  without  raising 
the  rates. 

As  soon  as  the  process  of  doubling  the  subscribers'  lines  was  ap- 
proaching its  conclusion,  the  work  of  substituting  the  common 
battery  for  the  magneto  method  of  exchange  operation  was  begun 
in  the  larger  cities,  and  at  the  same  time  plans  were  taken  up  again, 
where  dropped  half  a  dozen  years  before,  for  the  modification  of 
the  conditions  of  service  in  the  interest  of  the  public.1  The  busi- 
ness hours  in  some  of  the  smaller  exchanges  were  lengthened,2 
and  the  462  remaining  small  exchanges  —  being  those  at  which  less 
than  15,000  local  talks  took  place  per  annum,  that  is,  those  with 
no  more  than  thirty  or  so  subscribers  —  enjoyed  the  limited 
day  service.  The  smaller  exchange  systems  were  privileged  to 
maintain  all-night  service  by  making  their  own  arrangements  for 
attendance.  More  than  this,  the  telephone  administration  did  not 
yet  feel  able  to  do.  The  abolition  of  toll  charges  on  all  messages 
transmitted  less  than  10  kilometers  had  been  proposed  in  1899,* 
and  again  in  1905,*  but  the  Federal  Council  advised  that  the 
Assembly  defer  such  a  reduction5  until  they  were  surer  of  the 
financial  stability  of  the  undertaking.  The  advice  was  accepted. 

1  Geschaftsbericht  des  Bundesrates  pro  1905,  pp.  638-728.  The  Federal  Council 
felt  obliged  to  proceed  cautiously  with  its  plans  for  the  improvement  of  the  ser- 
vice, because  wages  and  the  cost  of  material  were  rising,  and  because  the  projected  in- 
troduction of  electric  motive  power  on  the  federal  railways  would  make  necessary  the 
relocation  of  most  of  the  inter-urban  toll  lines  at  great  expense.  See  especially  p.  641. 

*  Verordnung  vom  5.  Okt.,  ipo6,  A.  S.  n.  F.,  xxii,  p.  598. 

*  Geschaftsbericht  des  Bundesrates  pro  1900.   Bundesblatt,  1901,  ii,  764. 
4  Ibid.,  pro  1905,  p.  648. 

*  This  would  have  applied  to  10%  of  the  whole  toll  business. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM         247 

A  more  moot  point  related  to  the  reduction  of  the  obligations 
imposed  on  rural  villages  which  sought  telephone  connection  with 
the  nearest  telegraph  office  or  telephone  exchange.  The  liability 
of  the  local  authority  was  the  same  as  that  incurred  by  a  private 
person  who  installed  a  public  call  office  on  his  premises;  that  is, 
the  local  authority  paid  the  regular  charges  established  by  the  law 
of  1894,  and  recouped  its  expenditure  by  a  surtax  on  outgoing 
calls  (5  centimes  on  local  calls,  10  centimes  on  inter-urban^  and 
15  on  telegrams  telephoned  to  the  nearest  telegraph  office).  The 
department  could  not  make  these  conditions  any  lighter,  but  it 
could  help  isolated  rural  communities  by  modifying  the  conditions 
of  the  establishment  of  telegraph  offices.  The  latter  had  remained 
unchanged  for  over  forty  years  after  their  regulation  in  1857.  The 
local  authority  had  been  required  to  furnish  poles  and  a  right  of 
way  for  the  line,  and  a  location  for  the  office,  or  commute  the  same 
by  a  payment  of  money,  and  to  pay  an  annual  contribution  of  100 
francs  a  year  for  ten  years.  After  ten  years,  if  the  office  did  not 
dispatch  1000  telegrams  a  year,  the  village  authorities  were  re- 
quired to  continue  to  pay  100  francs  a  year,  or  if  the  office  dis- 
patched more  than  1000  but  less  than  2000  messages,  50  francs 
a  year.  They  were  relieved  of  the  payment,  however,  if  they  con- 
tinued to  place  a  location  for  the  office  at  the  disposal  of  the  tele- 
graph service.  Otherwise,  the  administration  might  abandon  the 
office.  In  fact,  3000  originating  messages  were  necessary  to  make 
such  a  rural  office  pay.  In  1897,  the  majority  of  the  rural  offices 
(noo  out  of  1997)  did  not  produce  3000  messages  a  year,  and  703 
produced  less  than  one  telegram  a  day.  All  these  offices  were  kept 
open  by  the  telegraph  authorities  at  a  loss.  Indeed  in  1897,  599 
of  these  unprofitable  offices  had  been  in  operation  over  ten  years, 
and  the  village  authorities  were  paying  the  supplementary  guar- 
antee rather  than  be  deprived  of  their  prompt  connection  with 
the  outer  world.1 

The  Federal  Council  could  not  recommend  that  these  condi- 
tions be  made  lighter  except  by  abolishing  the  supplementary 
guarantee  after  ten  years,  since  the  result  would  have  been  to 
transfer  a  larger  share  of  the  existing  loss  on  such  offices  to  the 
1  Geschafisbericht  des  Bundesratcs  pro  18971  Bundesblatt,  1898,  ii,  598. 


248  PUBLIC  OWNERSHIP  OF  TELEPHONES 

telegraph  undertaking,  and  at  the  same  time  call  into  existence 
new  offices  with  still  poorer  prospects  of  traffic.  It  could  only  sug- 
gest the  transformation  of  the  more  unprofitable  offices  into  tele- 
phone call  offices,  and  in  1900  it  made  this  transformation  com- 
pulsory for  all  offices  dispatching  less  than  one  telegram  a  day. 
Agitation  by  the  village  authorities  continued,  however,  and  in 
1906  the  obligations  imposed  upon  them  for  both  telegraph  and 
telephone  stations  were  materially  modified  by  their  release  from 
all  charges  after  the  first  ten  years  and  from  charges  for  office  rent 
from  the  date  of  opening.1 

Since  1905  the  growth  of  the  Swiss  telephone  system  has  been 
more  rapid  than  at  any  time  since  the  year  the  rate  law  of  1894 
went  into  effect.  But  the  telegraph  business  has  fallen  off.  Per- 
haps nowhere  has  the  effect  of  the  rise  of  the  telephone  upon  the 
telegraphs  been  more  pronounced  than  in  Switzerland.  The 
growth  of  traffic  during  the  generation  since  the  invention  of  the 
telephone  is  indicated  by  the  following  statistics  of  telegrams:  - 

Year  Number  dispatched 

Total  Internal  only 

1875  2,965,004  2,062,439 

1880  2,842,340  i,75i>°i8 

1890  3,824,040  1,965,862 

1902  4,180,622  1,474,095 

1906  5,106,697  1,608,838 

The  total  telegraph  traffic  has  grown  regularly  up  to  this  date, 
but  if  internal  traffic  alone  be  considered,  the  maximum  was  at- 
tained at  the  beginning  of  the  period.  In  1876  the  telegraph  rates 
were  reformed  by  the  replacement  of  message  rates  with  word 
rates,  and  the  general  level  of  rates  was  so  raised  as  to  restore  the 
equilibrium  of  the  undertaking.  The  immediate  result  was  a  great 
falling  off  in  the  traffic.  The  traffic  was  recovering  slowly,  however, 
during  the  eighties,  when  the  improvement  of  long-distance  te- 
lephony introduced  a  new  complication.  The  highest  point  of  the 
recovery  came  in  1890,  and  then  a  new  decline  set  in,  to  be  followed 
after  the  commercial  depression  of  1902  by  a  new  period  of  recov- 
ery. The  prospect  is,  however,  that  this  will  be  eventually  suc- 

1  Verordnung  vom  5.  Okt.,  iQod,  A.  S.  n.  F.,  xxii,  p.  592. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM         249 

ceeded  by  a  new  period  of  decline.  The  growth  of  the  long-distance 
telephone  business,  on  the  other  hand,  has  been  uninterrupted  and 
rapid. 

Year  Talks 

Inter^urban  International 

1890  576,493 

1902  5»093,i98  122,235 

1906  6,956,995  299,203        v 

From  1880  to  1906  the  number  of  kilometers  of  telegraph  wire  in- 
creased from  16,017.6  to  23,058.1,  whereas  the  length  of  telegraph 
line  reached  a  maximum  in  1890,  and  has  since  declined,  on  ac- 
count of  the  transformation  of  rural  telegraph  into  telephone  lines, 
by  1 8%.  In  1906  the  length  of  telephone  wire  was  273,162  kilo- 
meters. The  connection  between  these  facts  is  so  obvious  as  to  re- 
quire no  comment.  Yet  the  telegraph  service  is  well  maintained 
and,  on  account  of  the  constant  growth  of  the  international  and 
transit  traffics,  it  is  still  possible  to  make  both  ends  meet. 

During  the  fifty-two  years,  1855-1906,  the  total  receipts  from 
the  telegraph  and  telephone  undertaking  were  192,270,272.24 
francs,  and  the  total  expenditures  were  189,024,777.82  francs. 
At  the  end  of  the  period,  the  people  of  Switzerland  possessed  a 
well-preserved  telegraph  undertaking  free  of  all  charges,  and  a 
thriving  telephone  business,  the  assets  of  which  exceeded  the  lia- 
bilities by  nearly  25  %.  The  telephone  service  in  the  cities  is 
maintained  at  a  high  standard  of  efficiency  and  is  better  patronized 
than  anywhere  in  Europe  outside  of  the  Scandinavian  capitals. 
But  it  is  in  the  rural  service  that  the  Swiss  system  shows  at  its 
best.  In  1906  the  distribution  of  traffic  among  the  384  existing 
exchange  systems  was  as  follows:  — 

No.  of  systems  No.  of  daily  talks 

6  over  5000 

9  1001-5000 

9  501-1000 

15  251-  500 

51  101-  250 

146  26-  100 

148  25  or  less 


2$0  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Besides  these  exchange  systems  there  were  no  less  than  905  rural 
village  call  offices.1  If  we  examine  the  use  of  the  system  by  the 
individual  subscribers,  the  evidence  points  to  the  same  conclusion. 

No.  of  subscribers  No.  of  annual  local  talks 

5  2  none 

4865  i-  100 

6870  101-  200 

6469  201-  300 

5348  301-  400 

4445  401-  500 

3686  501-  600 

2901  601-  700 

2280  701-  800 

1880  801-  900 

1474  901-1000 

4174  1001-1500 

1627  1501-2000 

1237  2001-3000 

629  3001-5000 

250  over  5000 

The  highest  average  number  of  annual  talks  for  all  the  subscribers 
to  any  one  exchange  system  (1022)  was  in  the  largest  exchange 
system,  that  of  Zurich.  The  lowest  (194)  was  in  the  small  town  of 
Brig.  No  one  who  has  ever  had  the  pleasure  of  traveling  in  Switzer- 
land could  fail  to  receive  certain  impressions  which  these  figures 
strongly  corroborate,  namely,  that  the  Swiss  are  a  people  who 
have  individually  a  small  use  for  the  telephone,  but  that  a  smaller 
proportion  of  them  feel  no  need  of  it  than  in  almost  any  other 
country  which  a  traveler  is  likely  to  see.  A  discussion  of  the  sta- 
tistics of  comparative  telephone  development  in  the  several  coun- 
tries will  be  found  in  a  later  chapter.  In  this  place  it  suffices  to 
point  out  that  the  Swiss  by  the  public  ownership  of  telephones 
have  obtained  exactly  the  kind  of  service  they  desired,  and  have 
obtained  it  on  terms  extraordinarily  cheap. 

It  is  impossible  to  follow  the  development  of  the  governmental 
telephone  business  in  Switzerland  without  being  moved  to  admire 
1  Geschaftsbericht  pro  1906,  pp.  714,  718. 


FURTHER  DEVELOPMENT  OF  SWISS  SYSTEM        251 

the  facility  with  which  the  Swiss  political  institutions  have  lent 
themselves  to  the  conduct  of  public  business  undertakings,  and 
the  ease  and  precision  with  which  the  machinery  of  public  busi- 
ness organization  operates.  Some  minor  changes  in  the  adminis- 
trative organization  of  the  system  were  made  by  the  telegraph 
act  of  1907,*  but  the  main  features  of  the  previous  organization 
remained  unchanged.  The  responsibility  for  the  management  of 
the  telegraph  and  telephone  business  is  vested  by  the  Federal"  As- 
sembly, acting  on  behalf  of  the  people,  in  the  Federal  Council. 
The  latter  assigns  the  actual  supervision  of  the  conduct  of  affairs 
to  one  of  its  members,  and  issues  regulations  in  accordance  with 
the  telegraphs  acts  for  the  division  of  responsibility  for  business 
details  between  itself  as  a  whole,  the  particular  federal  councillor 
at  the  head  of  the  department  under  which  the  telegraphs  and 
telephones  are  placed,  and  the  permanent  officials  employed  under 
him  to  perform  the  duties  of  business  managers.  These  business 
managers  are  employed  on  account  of  their  technical  capacity,  as 
lawyers  or  expert  electricians  might  be  employed.  The  rates  are 
made  by  the  Federal  Assembly  upon  the  advice  of  the  Federal 
Council,  and  the  risks  are  borne  by  the  people  collectively  in  so  far 
as  they  are  not  shifted  to  those  portions  of  the  community  that 
desire  the  creation  of  new  facilities.  In  fact  this  shifting  of  risk 
to  the  consumer  is  a  recognized  practice  in  public  business  admin- 
istration in  Switzerland,  and  the  cantonal  and  municipal  authori- 
ties assume  readily  their  share  of  the  burden.  Thus  the  structure 
of  Swiss  public  business  enterprise  resembles  an  arch,  of  which  the 
people  themselves  in  their  double  capacity  of  producers  and  con- 
sumers are  the  foundations,  and  of  which  the  keystone  is  the 
Federal  Council,  that  unique  body  of  trained  administrators, 
consecrated  to  the  service  of  their  country  and  rewarded  by  the 
life  long  esteem  of  their  fellow  citizens. 

The  organization  of  the  telephone  business  in  Switzerland  sug- 
gests a  comparison  with  that  in  Germany.  In  most  respects,  the 
structure  is  the  same.  In  both  countries,  the  risks  are  taken  and 

1  Botschaft  des  Bundesrates  an  die  Bundesversammlung  betre/end  die  Vereinigung 
von  Post-  und  Telegraphcnverwaltungen  (vom  25.  Feb.,  1907).  Bundesblatt,  1907,  i, 
799- 


252  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  rates  are  made l  by  the  legislative  branch  of  the  government. 
The  actual  administration  is  intrusted  to  permanent  officials,  act- 
ing under  the  supervision  of  the  executive  authority,  likewise 
enjoying  security  of  tenure  of  office  during  good  behavior,  and  as- 
sisted in  the  work  of  adjusting  supply  to  demand  by  the  active 
collaboration  of  the  consumers  themselves.  In  Germany,  the  latter 
are  represented  by  their  quasi-public  economic  organizations ; 
in  Switzerland  the  local  political  organs  of  government  are  also 
enlisted  in  the  work.  In  both  countries,  the  division  of  responsi- 
bility for  the  good  conduct  of  the  telephone  business  in  accordance 
with  the  division  of  interest  in  its  good  conduct  has  produced  an 
efficient  system  of  public  business  administration.  The  striking 
difference  between  the  two  organizations  is  one  of  spirit.  The 
German  system  is  essentially  autocratic ;  or  perhaps  it  might  better 
be  described  as  benevolently  despotic.  The  Swiss  system  is  thor- 
oughly democratic.  The  partnership  between  the  administration 
and  the  public  is  founded  on  perfect  frankness  between  the  part- 
ners and  mutual  confidence.  It  is  probably  safe  to  assert  that  both 
organizations  are  highly  efficient,  but  in  the  case  of  Germany  we 
can  only  surmise  it,  whereas  in  that  of  Switzerland  we  know  it. 

In  competitive  businesses  the  professional  risks  are  so  great  that 
the  prospect  of  a  profit  is  necessary  in  order  that  these  businesses 
may  be  carried  on  at  all.  In  such  a  governmental  business  under- 
taking as  the  Swiss  telephones,  the  risks  are  abolished  by  the 
exclusion  of  competitors  and  the  organization  of  the  market.  The 
proprietors  of  the  undertaking,  however,  do  not  sacrifice  their 
prospects  of  profit.  The  Swiss  people  take  their  profit  in  the  form 
of  a  cheaper  and  more  widely  extended  service  than  it  is  possible 
to  conceive  under  any  form  of  private  ownership. 

1  It  is  at  least  practically  the  case  in  Germany,  although  legally  the  Reichstag  has 
a  voice  in  rate-making  only  in  case  the  rates  are  raised. 


CHAPTER  XIV 

THE  LABOR  SITUATION  IN  THE   SWISS  TELEPHONE   SERVICE 

IN  Switzerland  there  has  not  been  such  a  concentration  of  capi- 
tal and  of  labor  as  has  marked  the  development  of  the  factory 
system  among  her  more  powerful  neighbors.  There  are  not  the 
same  extremes  of  wealth  and  poverty.  A  larger  proportion  of  the 
Swiss  population  are  independent  farmers  or  handicraftsmen,  and 
class  barriers  are  less  in  evidence  than  in  such  a  country  as  Ger- 
many. Both  the  large  factory  and  the  large  body  of  wage-earners, 
dependent  upon  a  single  employer,  are  rare  in  Switzerland.  Hence 
the  economic  foundation  for  a  special  wage-earners'  movement  is 
weak. 

If  the  two  forms  of  expression  of  a  working-class  consciousness, 
trade-unionism  and  socialism,  are  found  as  highly  developed  in 
Switzerland  as  in  Germany,  the  explanation  must  be  sought  less 
in  the  strength  of  the  factors  tending  to  promote  such  a  movement 
than  in  the  weakness  of  those  tending  to  oppose  it.  In  fact,  neither 
form  of  expression  is  as  strong  in  Switzerland  as  in  Germany.  In 
the  Swiss  section  of  the  International  Trade-union  report  for  the 
year  1906  we  read  that  despite  the  greatest  efforts  on  the  part  of 
the  national  secretary,  he  was  unable  to  secure  statistics  indicating 
the  actual  membership  of  the  Swiss  trade-unions. l  The  conclusion 
that  must  be  drawn  from  this  is  that  the  local  unions,  or  at  least 
many  of  them,  were  too  weak  to  support  their  national  leaders 
properly.2  The  political  expression  of  a  distinct  working-class  con- 
sciousness was  scarcely  stronger.  The  number  of  socialist  votes 
cast  at  the  elections  to  the  National  Council  in  1905  was  a  round 
70,000,  less  than  a  tenth  of  the  electorate.3  This  was  a  marked  ad- 

1  Vierter  Internationaler  Bericht  uber  die  Gewerkschaftsbewegung,  1906.  Berlin, 
1908,  p.  127. 

*  Sombart  (Sozialismus  und  soziale  Bewegung,  6th  ed.,  p.  309)  estimates  the 
number  of  trade-unionists  in  1907  at  about  50,000  in  the  Allgemeiner  Gewerk- 
schaftsbund,  and  about  30,000  in  independent  local  organizations. 

1  Cf.  Sombart,  pp.  307-308. 


254  PUBLIC  OWNERSHIP  OF  TELEPHONES 

vance  over  the  strength  of  the  party  at  its  debut  in  1888.  Yet 
compared  with  the  socialist  movement  in  Germany,  Swiss  social- 
ism is  still  in  its  infancy. 

There  are  practically  no  obstacles  to  the  growth  of  an  inde- 
pendent working-class  movement  in  Switzerland  outside  of  public 
opinion.  The  laws  of  association  offer  no  restrictions  to  the  forma- 
tion of  political  or  economic  unions  of  any  sort,  whether  by  work- 
ingmen  in  private  employment  or  by  those  in  the  employ  of  the 
state.  Public  opinion,  however,  constitutes  a  serious  obstacle. 
This  is  not  because  the  Swiss  as  a  race  are  consciously  antagonistic 
to  socialism  or  to  trade-unionism.  Most  Swiss  are  probably  indif- 
ferent to  both,  although  the  spirit  of  class  consciousness  behind 
an  independent  workingmen's  movement  is  unquestionably  re- 
pulsive to  the  Swiss  ideals  of  democratic  individualism  and  the 
subordination  of  special  interests  to  the  welfare  of  the  whole  com- 
munity. The  Swiss  community  is  homogeneous,  despite  the  differ- 
ences of  race  and  language;  hence  the  spirit  of  class  cannot  meet 
with  general  favor.  But  the  principal  cause  of  the  resistance  of- 
fered by  public  opinion  in  Switzerland  to  socialism  and  trade- 
unionism  lies  in  the  fact  that  the  Swiss  people  are  always  ready 
to  listen  to  suggestions  for  social  reforms,  and  they  are  generally 
prompt  to  act  upon  them.  Their  system  of  the  initiative  and  the 
referendum  gives  every  Swiss  an  opportunity  to  lay  his  proposals 
before  the  people  and  to  secure  their  adoption  into  law  in  case  of 
approval  by  the  people.  The  result  is  that  all  measures  of  social 
reform  can  be  considered  upon  their  merits  under  the  existing 
institutions.  This  circumstance  tends  to  cut  the  ground  from 
beneath  the  feet  of  the  advocates  of  a  social  revolution.  Socialism 
in  Switzerland,  in  order  to  make  any  headway,  must  adopt  a  more 
opportunist  policy  than  in  Germany.  At  the  same  time  the  parties 
in  power  in  Switzerland  are  inclined  to  adopt  a  much  more  radical 
policy  than  their  German  prototypes. 

This  tendency  manifests  itself,  so  far  as  concerns  the  relations 
between  the  state  employer  and  the  public  servants,  in  the  crea- 
tion of  such  generous  conditions  of  employment  that  there  is  no 
incentive  to  independent  action  on  the  part  of  the  great  majority 
of  the  latter.  The  wages  and  general  conditions  of  employment 


THE  LABOR  SITUATION  IN  SWITZERLAND  255 

for  officials  in  the  telephone  service,  as  in  other  branches  of  the 
postal  and  telegraph  department,  were  originally  regulated  by  the 
general  salaries  act  of  1873.  This  act  classified  all  federal  officials, 
with  the  exception  of  skilled  workmen  employed  in  the  federal 
shops  and  construction  works  and  of  casual  and  unskilled  laborers, 
provided  for  security  of  tenure,  and  arranged  the  conditions  of 
promotion.  It  was  amended  at  various  times  during  the  next 
twenty  years  and  then  superseded  in  1896  by  a  new  general  sal- 
aries act.  The  new  act  established  maximum  and  minimum  rates 
in  each  class  and  provided  for  an  automatic  increase  of  salaries  by 
a  fixed  amount  every  three  years  until  the  maximum  should  be 
reached.  The  act  was  devised  to  readjust  the  official  salaries  to 
the  altered  conditions  of  life  that  had  come  about  in  the  genera- 
tion since  the  passage  of  the  former  act.  There  is  no  evidence  that 
the  public  employees  exercised  any  undue  influence  upon  the 
Federal  Assembly,  which  ordered  the  preparation  of  the  new  clas- 
sification and  schedules  of  wages,  or  upon  the  Federal  Council, 
which  was  intrusted  with  the  task  of  making  the  revision. 

The  first  special  movement  to  affect  the  conditions  of  employ- 
ment of  the  telegraph  and  telephone  employees  was  made  in  1891. 
In  the  previous  year  an  act  had  been  passed  regulating  the  hours 
of  labor  and  days  of  rest  of  employees  in  all  transportation  under- 
takings (railways,  lake  and  river  navigation,  street  railways,  and 
the  postal  service),  but  not  in  the  telegraph  and  telephone  service. 
Among  other  provisions  the  law  of  1890  prescribed  52  holidays  in 
each  year.  In  the  following  year  a  petition  was  sent  to  the  Fed- 
eral Assembly,  praying  that  the  benefits  of  the  law  of  1890  be  ex- 
tended to  the  telegraph  and  telephone  service.  The  Federal  Coun- 
cil replied  to  the  petition  in  a  message  to  the  Assembly,1  showing 
that  the  telegraph  and  telephone  employees  already  enjoyed  con- 
ditions of  employment  as  good  as  those  prescribed  by  the  law  of 
1890.  If  they  did  not  have  fifty-two  holidays  a  year,  as  that  law 
prescribed,  they  had  a  shorter  day  than  the  law  required,  and  en- 
joyed, besides  an  annual  vacation  of  fifteen  consecutive  days, 

1  Botschaft  des  Bundesrats  an  die  Bundesversammlung,  betreffend  die  Ruhetage  der 
Beamten  und  Angestellten  der  Telegraphen-  und  Telephonverwaltung  vom  4.  Dez.  i8pi. 
Bundesblatt,  1891,  v,  581  ff. 


256  PUBLIC  OWNERSHIP  OF  TELEPHONES 

other  days  of  rest  on  Sundays  and  holidays  sufficient  to  make  the 
total  number  of  days  of  rest  during  the  year  from  forty-two  to 
forty-four,  according  to  circumstances.  The  Council  accordingly 
recommended  that  the  petition  be  not  granted.  The  Federal 
Assembly  nevertheless  adopted  the  view  of  the  petitioners,  and 
extended  the  application  of  the  law  of  1890  as  desired.  It  is  im- 
portant to  add  that  the  petition  did  not  originate  among  the 
telegraph  and  telephone  employees,  but  came  from  the  Society 
for  the  Promotion  of  the  Observance  of  the  Sabbath. 

The  next  attempt  to  alter  the  conditions  of  employment  of  the 
telegraph  and  telephone  service  came  from  a  different  quarter.  At 
this  time  the  working-class  consciousness  was  just  awakening  in 
Switzerland.  The  use  of  the  initiative  in  federal  affairs  was  sanc- 
tioned by  the  people  in  1891,  and  the  radical  reformers  and  social- 
ists were  not  long  in  taking  advantage  of  the  new  institution  in 
order  to  test  the  state  of  popular  feeling  with  regard  to  the  prob- 
lems created  by  the  growth  of  the  wage-earning  class.  In  1894  a 
proposal  to  establish  by  law  the  right  to  work,  that  is,  the  right  of 
every  citizen  to  demand  from  the  state  the  opportunity  to  earn  a 
decent  livelihood,  was  submitted  to  the  popular  referendum  on 
the  initiative  of  several  thousand  more  than  the  requisite  fifty 
thousand  voters.  At  the  referendum,  however,  the  proposal  was 
defeated  by  the  heaviest  majority  ever  cast  at  a  Swiss  federal 
referendum.  There  were  75,880  citizens  who  voted  in  favor  of  the 
proposal  and  308,269  against  it,  or  a  majority  of  more  than  four 
to  one.  This  failure  to  establish  the  principle  of  the  right  to  work 
did  not  discourage  the  leaders  of  the  budding  working-class  move- 
ment. It  simply  diverted  the  direction  of  their  energies  from  the 
field  of  politics  to  that  of  trade-unionism. 

In  several  of  the  largest  Swiss  cities  at  about  this  time,  central 
labor-unions  were  formed  for  the  purpose  of  coordinating  the  work 
of  the  various  local  unions  then  just  struggling  to  their  feet,  and 
especially  in  order  to  maintain  a  permanent  salaried  secretary. 
His  function  was  to  direct  the  common  activities  of  the  local  unions 
and  in  general  to  promote  the  interests  of  the  wage-earning  class. 
In  Berne,  the  capital  of  the  Confederacy,  the  first  labor-secretary 
was  a  Russian  refugee,  Dr.  Wassilieff  by  name,  a  man  of  consider- 


THE  LABOR  SITUATION  IN  SWITZERLAND  257 

able  organizing  ability  and  of  tremendous  enthusiasm  for  the 
cause  which  he  was  paid  to  promote. 

He  immediately  set  to  work  to  stir  up  the  laborers  within  his 
sphere  of  influence  to  demand  the  improvement  of  their  conditions 
of  employment.  He  devoted  his  especial  attention  to  the  laborers 
employed  by  the  city  and  by  the  federal  government.1  He  caused 
the  laborers  employed  in  the  federal  military  workshops  to  elect 
commissions  for  the  purpose  of  framing  a  list  of  grievances.  *  The 
union  of  telegraph  and  telephone  laborers  did  likewise.  In  De- 
cember, 1896,  the  latter  sent  in  a  petition  to  the  federal  telegraph 
department  praying  for  a  radical  revision  of  their  conditions  of 
employment.  At  about  the  same  time  the  commissions  elected 
by  the  other  federal  laborers  sent  in  a  petition  to  the  Federal  Coun- 
cil, containing  their  desires  with  respect  to  the  amelioration  of  their 
conditions  of  employment. 

The  petition  of  the  telegraph  and  telephone  laborers  requested 
that  they  be  employed  on  the  same  principles  as  were  established 
for  the  higher  officials  and  various  grades  of  clerks  by  the  salaries 
act  of  1896,  and  that  their  union  be  officially  recognized  by  the 
department  as  the  representative  of  its  laborers.  The  other  peti- 
tion was  more  precise  in  its  prayer,  and  bore  testimony  to  the  guid- 
ance of  the  master-hand  of  Wassilieff.  Its  most  characteristic 
features  were  the  following:  — 

(1)  Days  of  rest:  every  Sunday  and  legal  holiday  plus  fourteen 
consecutive  days  for  vacation  and  the  first  of  May  (the  day  pro- 
claimed as  Labor  Day  by  the  International  Workingmen's  Con- 
gress at  Paris  in  1889); 

(2)  The  eight-hour  day; 

(3)  Overtime  to  be  paid  at'therate  of  25  %  more  than  the  normal 
wage  by  day,  50  %  more  by  night,  and  100  %  more  on  Sunday; 

(4)  Laborers  employed  continuously  for  more  than  two  years  to 
receive  permanent  positions  with  annual  salaries; 

(5)  Increase  of  salary  every  third  year  until  the  maximum  should 
be  attained ; 

(6)  Continuation  of  pay  during  illness; 

1  Wassilieff:  Die  Lokn-  und  Anstettungs-Verhtiltnisse  der  tidgcnossischcn  Arbcitcr, 
1896. 


258  PUBLIC  OWNERSHIP  OF  TELEPHONES 

(7)  A  retiring  allowance  of  four  fifths  of  latest  salary  in  case  of 
disability  after  fifteen  years'  service; 

(8)  A  minimum  wage  (in  case  of  laborers  employed  more  than 
two  years,  a  minimum  salary)  for  both  skilled  and  unskilled  la- 
borers; 

(9)  Equal  pay  for  both  men  and  women;  and 

(10)  Election  of  foremen  by  the  wage-earners.  . 

Such  sweeping  demands  might  well  have  staggered  less  gener- 
ous employers  than  the  Swiss  federal  government.  The  latter, 
however,  coolly  pigeonholed  the  two  petitions  and  waited  for  the 
flurry  to  blow  over.  But  they  reckoned  without  their  host.  There 
was  a  socialist  in  the  Federal  Assembly  as  well  as  in  the  labor  sec- 
retary's office  at  Berne.  Under  the  conditions  that  prevail  in  the 
Swiss  Federal  Assembly  he  had  no  difficulty  in  securing  the  assent 
of  a  majority  to  a  postulate,  requesting  the  Federal  Council  to 
investigate  and  report  concerning  the  conditions  of  employment 
of  the  federal  laborers.  When  the  Federal  Council  wrote  to  the 
author  of  the  postulate,  asking  him  what  he  wished  it  to  report 
about,  he  referred  it  to  the  two  petitions  and  to  Dr.  Wassilieff  s 
pamphlet  on  the  subject.  Then  the  Federal  Council  prepared  a 
full  statement  of  its  position.1 

This  statement  repudiated  absolutely  the  principle  that  the 
state  should  be  a  model  employer.  On  the  contrary  it  declared 
that  the  state  should  accept  the  standard  of  employment  estab- 
lished by  the  best  private  employers.  To  do  more  than  that  would 
simply  be  to  favor  one  class  of  workingmen  at  the  expense  of  others 
and  to  create  a  spirit  of  discontent  among  these  others  which  would 
be  injurious  both  to  themselves  and  to  private  business  generally. 
The  Federal  Council  pointed  out  that  those  of  its  employees  who 
were  employed  in  factories  or  workshops  already  enjoyed  the 
benefits  of  the  federal  factory  acts,  and  that  the  others  were  for 
the  most  part  casual  laborers  who  could  not  well  be  granted  the 
same  conditions  of  employment  as  were  enjoyed  by  the  higher 

1  Botschaft  des  Bundesrats  an  die  Bundesversammlung  betreffend  das  Postulat 
Wullschleger  (Lohn-  und  Anstellungs-Verhaltnisse  der  im  Dienst  der  Bundesverwal- 
tung  stehenden  Arbeiter)  vom  15.  Okt.  1897.  (Dated  April  28, 1899.)  Bundesblatt, 
1899,  ii,  621-687. 


THE  LABOR  SITUATION  IN  SWITZERLAND          259 

officials  and  clerks.  Security  of  tenure,  it  asserted,  for  manual  la- 
borers was  incompatible  with  satisfactory  diligence  at  work.  The 
requests  that  the  number  of  apprentices  in  the  workshops  be 
limited  in  accordance  with  a  rule  which  was  set  forth  in  the  peti- 
tion and  that  the  workmen  be  allowed  to  choose  their  own  foremen 
were  dismissed  on  the  ground  that  such  proceedings  were  irrecon- 
cilable with  efficient  production  and  the  good  conduct  of  affairs. 
The  demand  for  official  recognition  of  the  telegraph  and  telepfione 
laborers'  union  and  of  the  commissions  elected  at  Wassilieff's  in- 
stigation by  the  workmen  in  the  shops  was  declared  to  be  incom- 
prehensible. The  workmen  were  free  to  organize  as  they  saw  fit, 
and  the  managements  were  free  to  deal  with  the  officials  of  the 
unions  and  the  elected  commissioners  as  representatives  of  all  or 
of  a  part  of  the  workmen  in  their  respective  establishments  ac- 
cording to  the  nature  of  their  mandates.  Nothing  more,  in  the 
opinion  of  the  Federal  Council,  was  required.  There  was  no  com- 
plaint that  the  various  managements  had  dealt  arbitrarily  with 
the  organizations  of  their  laborers,  and  the  Federal  Council  re- 
fused to  take  away  their  liberty  to  deal  with  their  laborers  at  their 
own  discretion. 

The  Federal  Council  declined  to  accept  the  principle  of  a  mini- 
mum wage  on  the  ground  that  it  would  prevent  the  remuneration 
of  laborers  according  to  their  efficiency  and  would  cause  the  dis- 
charge of  many  laborers  not  capable  of  earning  the  minimum  as 
fixed  by  the  petitioners.  Periodic  increases  of  wages  also  were 
rejected  as  repugnant  to  the  principle  of  remuneration  according 
to  efficiency.  The  proposals  in  regard  to  pensions  in  case  of  illness 
or  disability  would  be  considered  in  connection  with  the  general 
workingmen's  insurance  bill  then  being  prepared.1  Finally,  the 
reduction  of  the  hours  of  labor  from  ten  or  eleven  to  eight  was  too 
abrupt.  The  reduction  of  the  hours  of  labor,  the  Federal  Council 
declared,  must  be  made  more  gradually,  lest  the  result  be  a  dimi- 
nution of  the  daily  output  and  a  loss  instead  of  a  gain  to  the  com- 
munity of  which  the  laborers  themselves  formed  a  part.  In  gen- 
eral the  federal  government  took  the  position  that  the  federal 
business  undertakings  must  be  managed  on  strictly  business  prin- 
1  This  bill  was  rejected  by  the  people  at  a  referendum  in  the  following  year. 


260  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ciples.  The  federal  employees  should  be  treated  as  well  as  the  best, 
but  no  better.  The  state  employer  should  follow,  not  lead,  the 
private  employer. 

Such  was  the  position  of  the  Federal  Council  in  1899.  This  de- 
claration of  principle  was  accepted  by  the  Federal  Assembly  with- 
out discussion  and  by  the  federal  laborers  without  protest.  Dr. 
Wassilieff  had  left  Berne,  and  the  labor  organizations  were  shrewd 
enough  to  recognize  that  their  position  could  not  be  improved  by 
any  but  opportunist  tactics.  There  is  no  record  of  another  such 
doctrinaire  expression  of  their  collective  will  with  regard  to  their 
conditions  of  employment.  They  had  found  that  their  state  em- 
ployer was  personified  in  the  shape  of  reasonable  beings  ready  to 
listen  to  their  grievances  and  to  give  reasons  for  refusing  a  remedy 
when  refusal  was  deemed  necessary.  Thereafter  the  unions  of 
laborers  in  the  employ  of  the  state  pushed  their  claims  to  a  revision 
of  their  conditions  of  employment  in  a  more  businesslike  manner. 
They  abandoned  many  of  the  more  extravagant  demands  of  1896, 
and  concentrated  their  attention  on  the  main  issue  of  security  of 
tenure  and  a  minimum  wage. 

In  1909,  just  ten  years  after  the  rejection  of  the  Wassilieff  pro- 
posals, the  federal  telegraph  department,  in  response  to  a  petition 
from  the  union  of  telegraph  and  telephone  laborers,  granted  the 
minimum  wage  and  security  of  tenure.  The  administration  did 
not  explain  why  it  had  abandoned  the  principles  laid  down  in  the 
message  of  1899.  Yet  by  granting  the  petition  of  the  laborers'  union 
in  1909,  it  had  accepted  the  principle  that  the  state  should  be  a 
model  employer.  Certainly  one  reason  for  the  change  of  opinion  on 
the  part  of  the  telegraph  authorities  was  the  change  of  tactics 
on  the  part  of  the  laborers.  The  tactful  petition  of  1909  bore  little 
resemblance  to  the  impracticable  manifesto  of  1896.  During  the 
interval  also  the  business  undertakings  of  the  federal  authorities 
had  greatly  increased  in  magnitude.  With  the  acquisition  of  the 
railways  came  the  necessity  of  a  more  careful  study  of  the  modern 
labor  problem.  The  abandonment  of  the  theoretical  position  of 
1899  shows  an  appreciation  of  the  main  fact  of  that  problem.  In 
practice,  even  at  the  time  of  the  Wassilieff  petitions,  the  laborers 
in  the  telegraph  department,  although  not  those  in  the  military 


THE  LABOR  SITUATION  IN  SWITZERLAND          261 

department,  enjoyed  more  liberal  conditions  of  employment  than 
laborers  similarly  employed  by  private  employers.1 

Another  instance  of  the  greater  recognition  obtained  by  the  em- 
ployees' association,  in  recent  years,  is  afforded  by  their  negotia- 
tions with  the  Federal  Council  to  secure  an  increase  of  their  wages 
to  correspond  to  the  increased  cost  of  living  that  set  in  with  the 
dawn  of  the  new  century.  By  1906  the  higher  cost  of  living  had 
become  so  marked  that  the  unions  of  federal  employees  began  to 
press  their  claims  to  an  increase  of  pay.  The  Federal  Council  re- 
cognized the  justice  of  their  claims,  but  wished  to  postpone  the 
revision  of  wages  until  a  general  act  could  be  prepared  that  would 
apply  to  all  the  federal  employees.  But  the  laborers  and  lower 
grades  of  clerks  could  not  wait  for  a  general  act.  In  December, 
1906,  the  Union  of  Postal,  Telegraph,  and  Customs  Officials,  the 
Union  of  Swiss  Transportation  Laborers  and  the  Union  of  Swiss 
Transportation  Officials  simultaneously  petitioned  the  Federal 
Assembly  for  a  special  supplement  to  their  regular  wage  during 
the  year  sufficient  to  compensate  for  the  increase  in  the  cost  of 
living.  The  petitioners  supported  their  prayer  by  tables  showing 
the  rise  in  price  of  the  leading  necessaries  of  life  since  1898.* 

The  lower  house  of  the  Federal  Assembly  accepted  the  sugges- 
tion of  the  petitioners,  and  recommended  that  a  supplement  of 
10%  of  the  regular  wage  be  given  to  all  married  employees  earning 
less  than  2500  francs  a  year.  Before  the  upper  house  could  act  in 
the  premises  the  Federal  Council  receded  from  its  earlier  position 
and  announced  that  it  would  make  a  proposal  for  a  temporary 
supplement  to  the  normal  wages  without  waiting  for  the  contem- 
plated revision  of  the  general  salaries  act.  The  employees  also 
were  dissatisfied  with  the  nature  of  the  supplement  proposed  by 
the  lower  house  and  brought  their  influence  to  bear  against  the  ac- 
ceptance of  the  latter's  proposal.  The  Federal  Council  then  made 

1  Cf.  Message  of  the  Federal  Council  concerning  the  contract  system  in  the  con- 
struction of  telegraph  and  telephone  works,  cited  below. 

1  Botschaft  des  Bundesrats  an  die  Bundesversammlung  belreffend  die  Bewilligung 
cines  Spezialkredites  behufs  Ausrichtung  von  Teuerungszulagen  fiir  das  Jahr  1906  an 
die  eidg.  Beamten  und  Angestellten  .  .  .  (vom  2.  April,  1907).  Bundesblatt,  1907, 
ii,  955  ff.  Cf.  Sckwcizerisches  Zentralblatt  fiir  Staats-  und  Gemeinde-verwaltung,  vii, 
217  ff.  and  viii,  84  ff. 


262  PUBLIC  OWNERSHIP  OF  TELEPHONES 

a  careful  investigation  and  eventually  recommended  that  each 
married  employee  or  unmarried  employee  with  persons  dependent 
upon  him  for  support  and  earning  less  than  4000  francs  a  year 
should  receive  an  addition  to  his  annual  salary  of  100  francs  a 
year,  and  that  all  other  employees  earning  less  than  4000  francs 
a  year  should  receive  50  francs.  This  proposal  was  accepted  with 
a  slight  modification  by  the  Federal  Assembly.  The  Federal  Coun- 
cil took  pains  in  its  message  to  the  Assembly  to  remark  on  the 
courteous  tone  of  the  employees'  petitions  and  the  reasonableness 
of  their  request. 

The  incident  in  itself  is  not  perhaps  of  great  importance,  but 
illustrates  very  well  the  good  understanding  that  prevails  between 
the  governing  bodies  and  their  employees.  The  influence  which 
the  latter  exert  in  order  to  bring  about  an  improvement  of  their 
conditions  of  employment  has  no  unhealthy  influence  on  Swiss 
politics;  it  is  not  so  strong  as  to  subordinate  the  good  of  the  ser- 
vice to  their  private  advantage;  and  yet  it  is  strong  enough  to 
secure  the  recognition  of  their  just  claims. 

The  Swiss  employees  have  by  no  means  obtained  all  their  de- 
sires. They  wish  legal  provision  for  accident  insurance,  but  that 
will  not  be  granted  until  a  general  system  of  workingmen's  acci- 
dent insurance  is  adopted  for  the  whole  republic.  They  wish  the 
legal  establishment  of  elective  boards  to  represent  them  in  all  ad- 
ministrative matters  affecting  their  interest,  but  while  the  repre- 
sentation by  means  of  the  voluntary  unions  works  so  well,  the 
government  is  slow  to  recognize  the  necessity  for  a  more  compre- 
hensive representation.  As  things  now  stand,  in  Switzerland  more 
than  in  any  other  country  on  the  Continent  of  Europe,  organized 
public  employees  are  admitted  to  a  share  in  the  determination  of 
the  conditions  of  employment,  and  the  collective  will  of  the  wage- 
earners  is  recognized  as  a  valuable  force  making  for  the  good  con- 
duct of  public  business  undertakings. 

In  the  year  1905,  when  the  Federal  Assembly  was  considering 
the  telegraph  and  telephone  budget  for  1906,  the  lower  house  re- 
quested the  Federal  Council  to  investigate  and  report  whether 
or  not  telegraph  and  telephone  works  would  be  constructed  more 
cheaply  and  more  quickly  if  the  work  were  done  under  contract 


THE  LABOR  SITUATION  IN  SWITZERLAND          263 

instead  of  directly  by  the  government.  The  mover  of  the  request 
pointed  to  the  fact  (which  no  one  contested)  that  the  federal  la- 
borers were  better  paid  and  enjoyed  better  terms  of  employment 
generally  than  did  the  laborers  employed  by  private  contractors, 
and  contended  that  the  policy  was  a  costly  one  for  the  government. 
The  Federal  Council  took  pains  to  reply  to  this  postulate  can- 
didly and  completely  in  a  special  message.1  It  admitted  that  the 
first  cost  of  the  work  done  by  the  telegraph  and  telephone  laborers 
was  greater  than  that  done  under  contract,  partly  because  the 
government  paid  its  laborers  more  and  partly  because  it  could 
not  drive  them  as  the  private  contractors  could  and  usually  did. 
It  asserted,  however,  that  this  higher  first  cost  made  for  economy 
in  the  long  run,  because  government  work  was  more  substantially 
executed  than  contract  work,  and  consequently  both  gave  better 
service  and  endured  longer.  In  order  to  secure  equally  satisfactory 
results  under  the  contract  system,  the  savings  in  the  cost  of  labor 
would  be  more  than  consumed  in  the  extra  expense  of  inspection 
during  the  execution  of  the  work  and  of  maintenance  afterwards. 
Hence,  apart  from  the  fact  that  the  piecemeal  and  scattered 
character  of  much  telegraph  and  telephone  construction  and  repair 
work  did  not  lend  itself  to  the  contract  system,  the  cheaper  con- 
tract labor  would  prove  in  the  long  run  the  more  costly.  The 
contractor  made  his  profit  by  the  employment  of  large  masses  of 
cheap  labor  for  each  separate  undertaking.  He  finished  his  con- 
tract as  soon  as  possible,  and  then  dismissed  his  laborers  until 
another  contract  should  be  secured.  The  telegraph  administration 
so  arranged  its  work  as  to  give  continuous  employment  to  a  smaller 
number  of  laborers  and  paid  to  them  in  wages  what  the  contractor 
put  in  his  own  pocket.  The  pursuance  of  this  policy  in  moderation, 
the  message  concluded,  stimulated  an  improvement  in  the  condi- 
tion of  the  laboring-classes  generally,  and  justified  itself  not  only 
by  the  increased  well-being  of  that  portion  of  the  community,  but 
also  by  the  increased  efficiency  which  resulted  from  the  gradual 
improvement  of  the  standard  of  living. 

1  Bolschaft  des  Bundesrats  an  die  Bundesversammlung  belreffend  Ubertragung  der 
Telegraphen-  und  Telephonlinien  bautenan  die  Privatindustrie  (vom  13.  Marz,  1906). 
Bundesblatt,  1906,  ii,  334  ff. 


264  PUBLIC  OWNERSHIP  OF  TELEPHONES 

This  message  marked  the  official  acceptance  of  the  policy  that 
the  state  should  be  a  model  employer  of  unskilled  as  of  other  grades 
of  labor.  The  granting  of  the  petition  of  1909  was  the  next  stage 
in  the  development  of  that  policy.  What  the  further  steps  will  be 
remains  yet  to  be  seen. 


PART  III 

PUBLIC  OWNERSHIP  OF  TELEPHONES  IN  FRANCE 


CHAPTER  XV 

PRIVATE  OWNERSHIP  OF  TELEPHONES    IN   FRANCE 

OUTSIDE  of  Germany  and  Switzerland,  no  European  telegraph 
administration  was  willing  to  take  upon  its  own  shoulders*  the 
task  of  building  up  a  telephone  business.  All  with  one  accord  de- 
clined to  assume  the  initial  risks,  preferring  to  turn  over  to  private 
enterprise  the  responsibility  for  the  adjustment  of  the  new  means 
of  communication  to  its  proper  place  in  business  and  social  life. 
In  France,  Belgium,  the  Netherlands,  Austria,  Hungary,  Italy, 
Norway,  Sweden,  Denmark,  and  Spain,  and  in  Europe  generally, 
the  telephone  was  consequently  introduced  not  by  the  public  au- 
thorities but  by  private  promoters. 

This  almost  universal  reluctance  to  undertake  the  new  venture 
requires  some  explanation.  To  dismiss  the  subject  with  the  terse 
observation  that  the  diffidence  of  the  public  telegraph  authorities 
was  caused  by  their  lack  of  enterprise  is  unjust  to  them.  It  is  un- 
questionably true  that  the  telegraph  authorities  of  Europe  gener- 
ally were  not  so  enterprising  as  the  energetic  and  acute  head  of 
the  German  telegraph  system.  Yet  we  cannot  hope  to  explain  the 
whole  telephone  history  of  Europe  on  the  "great  man"  theory. 
Though  the  telephone  was  everywhere  recognized  as  a  part  of  the 
public  telegraph  monopoly,  it  does  not  follow  that  on  this  account 
the  telegraph  authorities  were  themselves  bound  to  undertake 
the  task  of  experimenting  with  the  new  invention.  The  telegraph 
administrators  who  chose  another  method  of  introducing  the  tele- 
phone into  their  respective  countries  did  not  act  wholly  without 
reason. 

The  alternative  policy  of  intrusting  the  work  of  preliminary 
experimentation  to  private  enterprise  has  certain  advantages.  It 
enables  the  public  authorities  to  avoid  the  risk  of  sinking  the  pub- 
lic money  in  unsuccessful  investments.  At  the  same  time,  in  case 
the  undertaking  turns  out  well,  they  can  take  the  service  back  into 
their  own  hands  by  paying  the  private  speculator  a  reasonable 


268  PUBLIC  OWNERSHIP  OF  TELEPHONES 

recompense  for  his  service  in  relieving  the  public  of  the  risk  of  fail- 
ure. This  policy,  however,  requires  for  its  successful  application 
a  mutual  understanding  between  private  speculator  and  public 
administrator,  that  the  policy  is  only  temporary,  and  at  the  ter- 
mination of  the  experiment  the  former,  in  case  of  success,  is  to  re- 
ceive a  liberal  reward.  Otherwise  the  public  authorities  may  find 
difficulty  in  resuming  the  service,  when  it  becomes  desirable  to  do 
so,  or  the  success  of  the  experiment  may  be  grievously  impaired 
by  the  necessity  under  which  the  speculator  finds  himself  of  re- 
couping his  initial  expenditures  from  the  consumers  before  the 
termination  of  his  uncertain  period  of  operation.  Provided  these 
dangers  are  anticipated,  it  is  perfectly  legitimate  for  the  public 
authorities  to  call  in  the  aid  of  private  enterprise  in  order  to  under- 
take initial  risks. 

The  refusal  of  the  public  telegraph  authorities  outside  of  Ger- 
many and  Switzerland  to  assume  the  initial  risks  of  introducing 
the  telephone  implies  the  choice  of  this  alternative  policy  of  call- 
ing in  the  aid  of  private  enterprise,  for  it  was  impossible  for  the 
public  authorities  to  ignore  the  telephone  altogether.  Some  of  the 
arrangements  made  with  private  speculators  showed  a  greater 
regard  for  the  public  interests  than  others,  some  were  destined 
to  give  greater  satisfaction  and  endure  longer  than  others,  but 
the  outcome  in  all  cases  was  the  same. 

As  the  first  example  of  the  general  case  the  experience  of  France 
will  be  described.  The  employment  of  private  enterprise  to  carry 
out  the  purposes  of  the  public  authorities  was  traditional  in  France. 
It  was  the  policy  adopted  towards  the  railroads  at  the  time  of  their 
introduction.  It  was  the  policy  favored  by  the  third  Napoleon 
when  he  undertook  the  reorganization  of  the  lighting  and  trans- 
portation services  of  Paris.  It  was  a  policy  well  adapted  to  the  con- 
ditions of  France  because  the  centralized  organization  of  the  state 
and  the  stringency  of  its  administrative  system  made  public  regu- 
lation easy. 

The  first  appearance  of  the  telephone  in  France  was  at  the  World's 
Fair  of  1878  held  at  Paris.  Scientific  men  regarded  it  as  a  curious 
mechanical  toy;  business  men  regarded  it  as  an  impracticable 
Yankee  contrivance;  and  the  public  telegraph  authorities  simply 


PRIVATE  OWNERSHIP  IN  FRANCE  269 

failed  to  display  Stephan's  quick  grasp  of  its  possibilities.1  There 
the  matter  rested  for  a  year. 

In  1879  the  telegraph  authorities  were  forced  to  take  an  interest 
in  Bell's  astonishing  invention.  Representatives  of  the  various 
telephone  manufacturers  in  America  arrived  in  Paris  for  the  pur- 
pose of  creating  a  market  for  their  rival  products.  The  obvious 
way  to  do  this  was  to  establish  exchange  systems  on  the  plan  of 
those  first  constructed  in  the  United  States  in  the  preceding  ytar. 
But  in  order  to  do  so  the  consent  cf  the  telegraph  authorities  was 
indispensable.  In  1837,  after  the  episode  of  the  private  optical 
telegraph  company,  the  French  government  had  secured  its  tel- 
egraph monopoly  for  all  time  by  the  law  of  May  2.  This  law 
expressly  forbade  the  transmission  of  signals  from  one  place  to 
another,  whether  by  telegraph  instruments  or  otherwise,  without 
authorization.  After  electrical  telegraphy  had  supplanted  optical, 
this  law  was  confirmed  by  a  decree  of  Louis  Napoleon  dated  De- 
cember 27,  1851,  and  the  decree  was  given  the  force  of  law  along 
with  the  rest  of  his  decrees  issued  after  the  Coup  d'Etat  by  the  Con- 
stitution of  January  14,  1852.  There  was  no  doubt  in  1879  that 
the  telephone  could  not  be  introduced  into  France  without  the 
knowledge  and  the  consent  of  the  telegraph  authorities. 

Still  the  official  engineers  remained  sceptical  over  the  future 
of  the  telephone.2  The  minister  in  charge  of  the  postal  and  tele- 
graph service  consequently  did  not  feel  justified  in  asking  Parlia- 
ment to  sanction  the  investment  of  public  money  in  such  an  un- 
certain undertaking.  He  decided  to  accede  to  the  suggestions  of  the 

1  Concerning  the  early  history  of  the  telephone  in  France,  there  are  two  good 
contemporary  accounts,  one  written  from  the  standpoint  of  an  opponent  of  public 
ownership,  the  other  by  a  leading  advocate  of  that  policy:  — 

(1)  Rousseau:  Memoir e  sur  la  question  si  V exploitation  des  telephones  doit  etre  faite 
Par  Vital  ou  laissee  a  V Industrie  privee.    Paris,  1882.     Cited  as  Rousseau. 

(2)  Rapport  de  M.  G.  Cochery  sur  la  loi  concernant  Vetablissement  des  reseaux  tele- 
phoniques  d'interet  local  et  le  rachdt  des  reseaux  de  la  Societe  generale  des  telephones. 
Docs,  parl.,  Chambre  des  de"pute"s,  annexe  no.   3765.    Session  ordinaire,  1889. 
Cited  as  Cochery  Rapport. 

Cf.  also,  Roger  Lacombrade:  La  construction  et  exploitation  des  lignes  tiltphoniques 
en  France.  Paris,  1903.  Cited  as  Lacombrade. 

P.  Pradelle :  Le  service  des  pastes,  telegraphes,  et  telephones  en  France.    Paris,  1903. 
*  Lacombrade,  p.  40. 


270  PUBLIC  OWNERSHIP  OF  TELEPHONES 

American  promoters,  and  intrusted  the  task  of  introducing  the 
telephone  to  private  enterprise.  On  June  26,  1879,  he  issued  a 
cahier  des  charges  or  model  franchise,  indicating  the  conditions 
on  which  exchange  systems  might  be  established.1  Operation  was 
restricted  to  cities  approved  by  the  telegraph  authorities,  and  it 
was  stipulated  that  all  construction  should  be  performed  by  state 
engineers  under  guarantee  by  the  concessionnaires  of  full  com- 
pensation for  the  actual  expenses  incurred.  The  concessionnaires 
were  forced  to  accept  the  declaration  of  the  telegraph  department 
as  to  the  amount  of  such  expenses.  No  monopoly  was  granted, 
and  the  concession  was  good  only  for  five  years,  at  the  end  of  which 
period  the  government  was  free  to  make  any  new  arrangement  it 
saw  fit.  If  it  decided  to  engage  in  the  telephone  business  on  its  own 
account,  it  reserved  the  right  to  purchase  telephone  instruments  from 
the  concessionnaires  at  a  price  to  be  fixed  by  agreement,  or,  in  de- 
fault of  agreement,  by  arbitration,  but  without  any  compensation 
for  patent  rights.  Finally,  the  concessionnaires  were  obliged  to 
pay  a  royalty  of  ten  per  cent  of  their  gross  receipts. 

Such  was  the  first  European  telephone  franchise.  The  conditions 
could  not  be  regarded  as  favorable  to  the  growth  of  the  telephone 
industry.  The  restriction  of  the  franchise  to  five  years  without 
any  definite  provision  for  further  prolongation,  or  for  purchase 
at  the  end  of  that  period,  and  the  absence  of  any  protection  against 
competition,  either  between  different  private  companies  or  on 
the  part  of  the  state  itself,  increased  enormously  the  uncertainties 
of  the  infant  industry.  That  the  concessionnaires  thus  had  every 
incentive  to  mulct  the  public  while  the  opportunity  lasted  is  per- 
fectly obvious,  and  must  have  been  realized  at  the  time  by  the 
telegraph  authorities  themselves.  Yet  they  reserved  no  adequate 
control  over  rates.  Their  whole  attitude  seemed  to  have  been  dic- 
tated by  the  one  purpose  to  evade  the  risk  of  introducing  the  new 
service  by  shifting  the  responsibility  to  private  promoters.  At 
the  same  time  they  protected  themselves  against  unexpected  suc- 
cess by  making  the  term  of  the  franchise  short.  Consequently, 
in  order  that  private  enterprise  might  be  induced  to  undertake  the 
risk  at  all,  it  had  to  be  allowed  liberty  to  recoup  its  advances 

1  Cochery  Rapport,  pp.  20-27. 


PRIVATE  OWNERSHIP  IN  FRANCE  271 

quickly  from  the  consumers.  The  cahier  des  charges  of  1879  as- 
sured the  safety  of  the  governmental  telegraphs,  at  least  for  a 
while,  and  in  the  meantime  left  the  public  and  the  concessionaires 
to  get  along  as  best  they  could.  The  only  explanation  of  this  pol- 
icy is  that  the  telegraph  authorities  expected  the  public  to  be  amply 
protected  by  the  growth  of  a  lively  competition.  Nevertheless, 
they  can  scarcely  be  excused  for  their  failure  to  make  definite 
provision,  either  for  the  later  resumption  of  the  business  on  fair 
terms  or,  if  deemed  expedient,  for  continuance  of  the  business 
under  private  management,  subject  to  public  regulation  in  the  in- 
terests of  the  community.  If  the  telephone  should  eventually 
prove  to  be  an  undertaking  that  ought  to  be  managed  as  a  part  of 
the  public  telegraph  service,  the  later  resumption  of  the  industry 
was  certain  to  cause  trouble. 

At  first  it  seemed  that  the  expectation  of  a  lively  competition 
was  to  be  realized.  During  the  course  of  the  summer  of  1879, 
three  separate  undertakings  were  authorized.1  The  Gower,  Blake- 
Bell,  and  Edison  systems  received  special  concessions  in  the  order 
named.  The  first  and  last  were  entitled  to  establish  exchange  sys- 
tems in  Paris,  Lyons,  Marseilles,  Bordeaux,  Lille,  and  Nantes. 
The  Blake-Bell  concession  was  good  for  Paris  only.  The  prospects 
for  a  period  of  lively  competition  might  well  have  been  considered 
bright,  yet  before  any  work  was  actually  begun  these  prospects 
were  dispelled.  The  concessions  were  transferred  from  one  pro- 
moter to  another,  until  on  December  10,  1880,  all  found  their  way 
into  the  hands  of  a  single  company  known  as  the  Societe  generate 
des  telephones. 

This  process  of  amalgamation  was  initiated  by  the  rival  pro- 
moters themselves,  who  quickly  realized  that  if  their  concessions 
were  to  be  of  any  profit  to  them  they  must  not  squander  their  five 
years'  lease  of  life  in  the  telephone  business  by  trying  to  cut  one 
another's  throats.  The  process'was  accelerated  and  brought  to  an 
early  conclusion  by  the  refusal  of  the  municipal  authorities  of 
Paris  to  allow  the  use  of  the  public  ways  for  carrying  telephone 
lines  until  the  fusion  was  accomplished.  The  ground  of  this  refusal 
was  that  much  unnecessary  damage  to  public  property  would  re- 

1  Rousseau,  pp.  1-2. 


272  PUBLIC  OWNERSHIP  OF  TELEPHONES 

suit  in  digging  three  conduit  trenches  in  the  pavement,  or  three 
post  holes  in  the  sidewalk,  where  one  would  do  as  well.1  The  re- 
sult of  this  refusal  was  to  prevent  the  growth  of  competition  any- 
where in  France. 

The  first  exchanges  in  Paris  were  opened  in  the  early  part  of 
1 88 1 ,2  at  the  same  time  that  Stephan  was  opening  his  first  exchange 
in  Berlin  and  the  Swiss  their  first  exchanges  in  Basel  and  Berne. 
The  rate  in  Paris  was  fixed  at  600  francs  and  elsewhere  at  400  francs. 
The  first  German  rate  was  200  marks  and  was  reduced  in  1884  to 
150  marks.  The  early  Swiss  rate  was  150  francs.  The  French  pub- 
lic were  certainly  paying  a  heavy  price  in  order  that  their  telegraph 
authorities  might  employ  the  aid  of  private  enterprise  in  under- 
taking the  initial  risks  of  establishing  the  telephone  business. 

The  public  authorities  were  not  slow  to  perceive  this.  Yet  they 
could  not  make  up  their  minds  what  was  the  proper  course  for 
them  to  pursue.  The  latest  of  the  three  concessions  owned  by  the 
Sociele  generate  des  telephones  would  expire  on  September  8,  1884. 
The  telegraph  authorities  were  not  yet  convinced  that  the  tele- 
phone service  ought  to  be  administered  in  conjunction  with  the 
telegraphs.  Yet  it  was  already  apparent  to  them  that  the  telephone 
was  a  business  with  a  future  before  it.  In  order  to  gain  experience 
in  the  conduct  of  telephone  operations,  they  proposed  in  1882 
that  the  government  itself  should  tentatively  establish  exchanges 
in  a  few  places.3 

There  was  also  another  reason  for  their  engaging  in  the  business 
at  that  time.  The  telephone  company  had  already  established  ex- 
changes in  only  half  a  score  of  the  largest  cities  in  France  and 
showed  no  disposition  to  extend  the  service  to  the  medium-sized 
places,  to  say  nothing  of  the  smaller  cities.  This  was  just  what 
might  have  been  expected  to  be  the  result  of  restricting  the  franchise 
to  so  short  a  period  as  five  years.  The  company  simply  skimmed 
the  cream.  The  telegraph  authorities  tardily  awoke  to  the  reali- 
zation that  they  had  a  duty  to  perform  towards  medium-sized 
cities.4 

The  proposal  of  1882  at  once  raised  the  general  question  of  the 

1  Cochery  Rapport,  p.  9.  *  Rousseau,  p.  8. 

*  Lacombrade,  p.  49.  4  Cochery  Rapport,  p.  10. 


PRIVATE  OWNERSHIP  IN  FRANCE  273 

advisability  of  the  state's  engaging  in  such  a  commercial  under- 
taking as  the  telephones.  This  question  had  never  arisen  in  con- 
nection with  the  telegraphs,  because  they  were  not  undertaken  as 
a  commercial  venture.  The  whole  subject  had,  however,  been 
threshed  over  several  times  in  connection  with  the  railroads,  and 
only  within  a  few  years  the  French  had  reluctantly  yielded  to  sup- 
posed necessity  and  decided,  rather  against  their  general  inclina- 
tion, to  enter  upon  a  policy  of  state  railroad  construction  and  opera- 
tion. The  telephone  question  was  relatively  a  trivial  matter  and 
attracted  comparatively  little  attention.  There  was  some  protest 
that  the  telephone  company  was  being  deprived  of  the  fruits  of  its 
early  labors.1  The  telephone  company,  however,  could  count  on 
little  popular  sympathy.  It  was  already  making  the  most  of  its 
fleeting  opportunity,  and  could  not  justly  complain  if  the  state 
chose  to  carry  the  business  into  places  into  which  the  company 
did  not  care  to  go.  That  did  not  diminish  its  expectation  of  profit 
before  1884,  and  after  that  date  it  had  no  claim  to  carry  on  the 
business  at  all. 

There  was  a  more  general  disinclination  to  see  the  government 
engage  in  the  telephone  business  on  broader  grounds  of  public 
policy.  The  laissez  faire  school  of  political  economy  was  then  in- 
fluential in  France,  and  was  consistently  opposed  to  governmental 
ownership  of  telephones.  But  the  great  mass  of  the  people  were  not 
interested  in  the  telephone.  At  that  time  it  was  used  only  by  bank- 
ers and  brokers,  large  manufacturers  and  wholesale  merchants  in 
Paris  and  a  small  number  of  the  largest  cities  in  the  departments. 
Public  opinion  was  willing  to  leave  the  telegraph  authorities  to 
deal  with  the  telephone  in  any  way  they  saw  fit,  provided  they 
did  not  put  a  financial  burden  on  the  public  treasury.  Parliament 
voted  the  desired  appropriation  of  a  quarter  of  a  million  francs  in 
July,  1882,  and  work  was  immediately  begun.2 

The  subsequent  history  of  private  telephones  in  France  is  re- 
lated in  Cochery's  report  of  1889.  His  account  of  the  facts  is 
absolutely  trustworthy,  whatever  differences  of  opinion  may  arise 
in  regard  to  his  conclusions. 

The  government  opened  exchanges  at  Rheims,  Roubaix,  and 
1  Rousseau,  pp.  4-6.  *  Lacombrade,  p.  75. 


274  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Tourcoing,  April  i,  1883,  and  during  the  next  two  or  three  years 
in  a  few  other  cities  of  commercial  importance.  When  the  time 
arrived,  however,  for  a  new  decision  concerning  the  ultimate  dispo- 
sition to  be  made  of  the  telephone  industry,  the  government  was 
still  unable  to  adopt  a  definite  policy.  It  was  not  yet  prepared  to 
take  the  entire  business  into  its  own  hands,  and  it  was  equally 
unwilling  to  turn  it  over  to  private  enterprise  without  reserving 
the  power  to  protect  the  public  telegraphs.  There  was  nothing 
left  to  do  but  to  prolong  for  another  term  of  five  years  the  exist- 
ing temporary  arrangement.  The  policy  of  drifting  had  at  least 
the  advantage  of  assuring  the  government  its  ten  per  cent  of  the 
gross  receipts  from  private  telephone  operations. 

The  minister  in  charge  of  the  telegraphs  was  reluctant  to  assume 
the  entire  responsibility  for  this  policy.  He  introduced  a  bill  into 
Parliament  June  21,  1884,  to  sanction  his  decision,  or  rather  in- 
decision, but  the  special  committee  appointed  to  consider  the  bill 
reported  that  legislation  was  unnecessary  because  the  proposed 
cahier  des  charges  was  simply  an  extension  of  the  former  one, 
granting  no  monopoly  and  putting  no  financial  burden  on  the 
government.  Parliament  accordingly  declined  to  accept  any  re- 
sponsibility in  the  premises,  and  did  not  even  appropriate  funds 
in  order  that  the  telegraph  authorities  might  extend  the  works 
which  they  had  already  undertaken.1 

The  minister  in  charge  of  the  telegraph  service  had  promised 
in  introducing  his  bill  to  continue  his  new  policy  of  establishing 
exchanges  at  the  same  time  that  he  prolonged  the  concession  of 
the  Societe  generate.  However,  he  could  not  do  much  without 
appropriations.  Moreover,  in  1885,  the  progress  of  telephony 
made  it  impossible  to  defer  longer  the  construction  of  long-distance 
lines.  Such  construction  was  beyond  the  power  of  the  company 
without  special  authorization.  The  telegraph  authorities  were 
therefore  obliged  either  to  undertake  it  themselves  or  to  require 
the  company  to  do  it  for  them.  They  were  decidedly  averse  to  in- 
viting the  company  to  relieve  them  of  this  task,  because  long-dis- 
tance lines  would  come  into  direct  competition  with  the  public 
telegraphs.  Accordingly  they  were  willing  for  once  to  undertake 
1  Cochery  Rapport,  pp.  15-17. 


PRIVATE  OWNERSHIP  IN  FRANCE  275 

the  risk  themselves.  This  construction  consumed  what  little  spare 
capital  the  department  had  at  its  disposal,  and  prevented  the  ex- 
pansion of  the  local  service  from  being  pushed  with  even  the  vigor 
that  might  otherwise  have  characterized  that  branch  of  the  service. 
The  telegraph  authorities  suspended  the  construction  of  new  ex- 
changes after  the  beginning  of  the  year  1887,  and  the  company 
established  but  one  after  I883.1 

In  1888  there  were  only  twenty-seven  exchanges  in  all  France, 
of  which  twelve  had  been  established  by  the  Societe  generate. 
One  of  these,  that  at  Lille,  was  sold  to  the  state  in  1885  in  order  to 
complete  its  local  territorial  telephone  system,  which  included 
Roubaix,  Tourcoing,  and  the  vicinity.  Only  three  of  the  company's 
exchanges  were  established  in  cities  of  less  than  100,000  inhabi- 
tants. In  1888  6120  out  of  its  8459  subscribers  were  in  Paris 
alone.  In  the  same  year  the  government  was  operating  exchanges 
in  sixteen  places.  Only  six  of  these  were  places  of  under  40,000  in- 
habitants. The  total  number  of  subscribers  to  governmental  ex- 
changes was  only  2288.  The  development  proportionately  to  the 
population  of  the  places  served  was  slightly  greater  in  the  exchange 
systems  of  the  state  than  in  those  of  the  company. 

In  1885  the  government  began  the  construction  of  long-distance 
lines  between  Paris  and  the  provincial  cities  which  were  provided 
with  exchanges.  The  most  important  of  the  long-distance  lines 
was  that  to  Marseilles  by  way  of  Lyons.  This  was  finished  in  the 
summer  of  1888,  and  was  over  five  hundred  miles  in  length.  One 
international  line,  that  to  Brussels,  had  also  been  constructed. 
This  line,  about  two  hundred  miles  long,  was  opened  in  February, 
1887.  The  immediate  result  was  a  marked  falling  off  in  the  num- 
ber of  telegraphic  communications  between  the  two  places,  and  the 
receipts  from  telegraph  fees  consequently  showed  a  great  decline.2 
In  the  case  of  the  traffic  with  Brussels,  the  losses  on  the  telegraphs 
were  more  than  compensated  for  by  the  receipts  from  the  long-dis- 

1  Cochery  Rapport,  pp.  46  ff. 

2  Cochery  Rapport,  p.  71.   For  the  effect  of  the  construction  of  long-distance  tele- 
phone lines  on  the  traffic  over  parallel  telegraph  lines,  cf . :  Rapport  de  M.  Belugou  d  la 
commission  consultative  des  pastes  et  ttlegraphes,  1887,  p.  22;  and  the  Rapport  de  M. 
Ungerer  d  la  meme,  1888.     Cited  by  Lacombrade,  p.  38.    The  decline  was  marked 
in  some  small  countries,  such  as  Belgium,  the  Netherlands,  and  Switzerland. 


276  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tance  telephone.  But  there  was  no  certainty  that  this  would  be 
the  result  everywhere.  The  use  of  the  long-distance  telephone  might 
in  many  cases  even  supplant  altogether  that  of  the  telegraph. 
Thus  the  effect  of  the  further  extension  of  long-distance  telephony 
might  be  to  render  useless  a  vast  amount  of  valuable  plant.  In 
order  to  protect  itself  against  this  contingency,  the  department 
experimented  with  a  device  invented  by  a  Belgian  telegraph  engi- 
neer, van  Rysselberghe,  intended  to  make  possible  the  simulta- 
neous use  of  the  telegraph  wire  for  both  telegraphy  and  telephony. 
The  system  did  not  prove  a  success.  Successful  telephony  over 
considerable  distances  required  the  use  of  a  special  wire  made  of 
bronze  or  other  expensive  material.  The  simple  iron  telegraph 
wire  would  not  serve  the  purpose.  Thus  the  telegraph  administra- 
tion saw  itself  threatened  with  serious  losses  from  the  not  im- 
probable growth  of  the  telephone  at  the  expense  of  the  telegraph. 

No  human  eye  could  foresee  the  future  development  of  the  tele- 
phone industry.  The  progress  of  electrical  engineering  in  the  pre- 
ceding decade  had  been  bewildering.  The  electric  arc  and  incan- 
descent lights,  the  electric  street  railway,  were  unknown  ten  years 
before.  When  telephone  exchanges  were  first  established,  the  use 
of  the  instrument  over  distances  of  more  than  a  score  or  two  of 
miles  was  wholly  impracticable.  But  if  messages  were  already 
being  sent  by  long-distance  telephone  over  hundreds  of  miles, 
what  might  not  the  immediate  future  have  in  store?  Nothing 
was  impossible. 

The  decade  of  skepticism  and  indecision  in  the  French  telegraph 
administration  was  terminated  by  a  sharp  spasm  of  alarm.  It 
was  then  seen  what  a  mistake  it  would  have  been  to  have  allowed 
the  telephone  industry  to  have  escaped  altogether  from  the  con- 
trol of  the  telegraph  authorities.  Those  countries  which  at  the  be- 
ginning had  introduced  the  telephone  into  the  public  telegraph 
system  were  now  able  to  control  the  development  of  the  industry 
and  prevent  an  excessively  rapid  depreciation  of  the  public  in- 
vestment in  the  telegraphs.  The  French  telegraph  authorities  at 
the  beginning  had  been  cautious.  They  had  not  undertaken  to 
introduce  the  telephone  themselves,  but  they  had  so  limited  their 
concessions  that  now  they  could  quickly  get  complete  control  of 


PRIVATE  OWNERSHIP  IN  FRANCE  277 

the  industry  back  into  their  own  hands.  And  they  resolved  to 
doit. 

Cochery  in  his  report  of  1889  states  the  reasons  which  were 
me'ant  to  convince  Parliament  of  the  wisdom  of  the  decision  made 
by  the  telegraph  authorities.1  Under  the  existing  arrangement, 
it  was  pointed  out,  there  was  no  adequate  protection  for  the  pub- 
lic against  the  exaction  of  unreasonable  rates  by  the  company. 
Moreover  the  company  had  made  such  good  use  of  its  prolonged 
lease  of  life  in  order  to  recoup  its  original  expenditure,  that  it 
would  now  be  impossible  for  any  private  competitor  to  make  head 
against  it.  In  the  commanding  position  in  which  it  had  intrenched 
itself  it  was  impregnable  to  all  ordinary  attacks. 

But  this  was  no  answer  to  the  objection  that  a  new  contract 
could  be  made  with  the  company  by  virtue  of  which  the  public 
authorities  could  assure  to  the  company  security  of  tenure  for  a 
definite  period,  with  a  predetermined  status  at  the  end  of  that 
period,  and  in  return  demand  some  concessions  in  the  interest  of 
the  community  at  large.  In  fact,  such  a  contract  had  already  been 
proposed.2  On  January  18, 1887,  M.  Granet,  who  was  then  the  min- 
ister in  charge  of  the  telegraph  service,  introduced  a  bill  into  Par- 
liament to  give  the  sanction  of  law  to  an  agreement  which  he  had 
drawn  up  with  the  telephone  company  November  25,  1886,  by 
virtue  of  which  precisely  this  object  was  to  be  obtained.  The  50- 
ciete  generate  was  to  be  transformed  into  the  Societe  fermiere  des 
telephones ;  that  is,  the  monopoly  of  the  telephone  business  was  to 
be  farmed  out.  The  concession,  which  was  nominally  a  lease,  was 
to  run  thirty-five  years.  The  government  was  to  turn  over  to  the 
company  all  its  existing  exchanges.  At  the  end  of  the  concession 
the  entire  plant  operated  by  the  company  was  to  revert  to  the 
state  without  cost.  Provision  was  made  for  the  option  of  the  repur- 
chase by  the  state,  according  to  specified  terms,  after  fifteen  years, 
but  until  that  period  had  elapsed  the  company  was  to  have  an 
absolute  monopoly.  Rates  were  fixed  by  mutual  agreement  in 
advance  at  400  francs  for  Paris  and  300  francs  for  the  departments. 

1  Cochery  Rapport,  pp.  105  ff. 

*  Ibid.,  pp.  31-34.     Cf.  the  debate  in  the  Chamber  of  Deputies,  July  9-10,  1889. 
Journal  Officiel,  D6bats  parl.,  Ch.  des  Dip.,  1889. 


278  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Reductions  were  to  be  made  when  net  profits  to  stockholders 
should  exceed  eight  per  cent.  The  company  was  to  pay  to  the  state 
as  rental  fifteen  per  cent  of  the  net  profits,  to  be  ascertained  by 
deducting  from  the  gross  receipts  the  operating  expenses  plus 
the  payments  towards  a  sinking  fund  for  the  capital  invested,  both 
bonds  and  stocks.  Only  on  the  surplus  remaining  after  the  stock- 
holders had  received  six  per  cent  dividends  in  addition  to  the  sums 
set  aside  for  amortization,  should  the  fifteen  per  cent  of  the  govern- 
ment be  reckoned. 

In  support  of  his  bill  Granet  ascribed  the  backward  condition 
of  the  telephone  business  of  France  (which  was  undisputed)  to  the 
division  of  management  between  the  company  and  the  state.  The 
company  feared  purchase  in  1889,  and  hence  would  not  establish 
new  exchange  systems,  improve  those  already  in  existence,  or  re- 
duce its  rates.  The  government  on  its  side  did  not  want  the  com- 
pany to  establish  new  exchanges,  for  that  would  mean  just  so  much 
more  plant  to  be  purchased  at  the  expiration  of  its  franchise. 
Nor  could  the  government  construct  new  works  itself  on  account 
of  the  difficulty  of  securing  appropriations  from  Parliament.  Par- 
liament was  unwilling  to  appropriate  the  public  money  until  it 
knew  what  the  ultimate  disposition  of  the  plant  was  to  be,  and  in 
fact  had  not  appropriated  anything  for  fresh  construction  since 
its  first  appropriation  in  I882.1 

During  the  interval  between  the  publication  of  the  Granet  plan 
and  its  discussion  in  Parliament,  its  author  was  replaced  at  the 
head  of  the  postal  and  telegraph  administration  by  M.  Coulon. 
The  latter  was  frankly  hostile  to  the  proposal  of  his  predecessor. 
Public  opinion  was  divided  in  everything  except  in  impatience  with 
the  existing  state  of  affairs.  In  a  special  report  prepared  by  a  lead- 
ing business  man  in  response  to  a  request  from  the  subscribers  to 
the  telephone  system  in  Paris,2  it  was  stated  (i)  that  the  telephone 
rates  of  the  Societe  generate  were  excessive;  (2)  that  those  of  the 
state  were  complicated  and  unsound  in  principle; 3  (3)  that  public 

1  Lacombrade,  p.  67. 

*  U  exploitation  des  telephones ;  rapport  pr6sent6  a  la  Chambre  syndicate  des  In- 
dustries diverses,  stance  du  28  feVrier  1888,  par  M.  Le"on  Ducret,  president  de  la 
Chambre  syndicate,  etc.    Paris,  1888.    Part  3,  Conclusions. 
x  *  These  rates  will  be  discussed  in  a  later  chapter. 


PRIVATE  OWNERSHIP  IN  FRANCE  279 

ownership  had  serious  disadvantages;  (4)  that  the  Granet  plan 
was  undesirable  in  that  it  contemplated  the  establishment  of  one 
single  monopoly  over  the  whole  country  and  was,  moreover,  a  less 
favorable  bargain  from  the  standpoint  of  the  government  than 
might  reasonably  have  been  expected.  The  solution  of  the  prob- 
lem recommended  in  this  report  was  the  division  of  all  France 
outside  of  Paris  into  half  a  dozen  sections,  in  each  of  which  the 
telephone  monopoly  should  be  farmed  out,  and  the  creation  of  a 
special  company  to  manage  the  business  in  Paris.  This  proposal 
may  have  been  suggested  by  the  French  treatment  of  the  railroad 
problem,  and  also  bears  a  close  resemblance  to  the  plan  adopted 
in  this  same  year  (1888)  for  supplying  Paris  with  electric  light. 
It  was  in  harmony  with  French  methods  of  regulating  monopolis- 
tic businesses.  However,  it  possessed  the  fatal  defect,  from  the 
point  of  view  of  the  government,  of  not  providing  an  adequate 
safeguard  for  the  revenues  from  the  public  telegraphs. 

In  the  sessions  of  1887  and  1888,  Parliament  took  no  action 
in  regard  to  the  Granet  proposal.  In  1889  action  of  some  sort 
was  unavoidable.  By  that  time  also  Parliament  had  become 
convinced  of  the  strength  of  the  second  main  argument  brought 
forward  in  the  Cochery  report,  viz.,  the  expediency  of  preventing 
disastrous  competition  between  the  telephone  and  the  public 
telegraphs.1  No  concession  could  provide  for  all  possible  contin- 
gencies in  such  a  surprising  business  as  the  telephone.2  The  only 
certain  means  of  protection  was  for  the  state  itself  to  own  the 
telephones.  If  the  government  should  attempt  to  make  its  task 
lighter  by  keeping  in  its  own  hands  only  the  long-distance  lines, 
as  was  provided  under  the  Granet  plan,  the  separate  manage- 
ment of  the  local  exchange  systems  might  be  expected  to  lead  to 
endless  complications.  The  logical  conclusion  was  that  the  govern- 
ment should  at  once  regain  complete  control  of  the  entire  telephone 
industry.3  On  March  19, 1889,  the  Chamber  of  Deputies  rejected 
the  Granet  plan. 

The  Societe  generate,  however,  was  not  disposed  to  abandon 
its  lucrative  business  without  a  struggle.  No  sooner  was  the  agree- 
ment of  November  25,  1886,  rejected  by  Parliament  than  it  pro- 

1  Cochery  Rapport,  p.  118.  *  Ibid.,  p.  120.          '  Cochery  Rapport,  p.  121. 


280  PUBLIC  OWNERSHIP  OF  TELEPHONES 

duced  an  earlier  secret  agreement  of  a  similar  purport.  This  agree- 
ment was  made  between  Minister  Granet  and  the  representatives 
of  the  Societe  generate  on  July  22,  1886.  The  latter  declared  that 
it  did  not  require  the  sanction  of  Parliament  and  that  they  should 
regard  it  as  valid  and  binding  on  both  parties.  The  government 
of  the  day  in  1889  denied  the  validity  of  the  agreement  and  chal- 
lenged the  right  of  the  company  to  operate  its  telephone  exchanges 
after  the  expiration  of  the  concession  of  1884  on  September  8, 1889. 1 
Let  us  draw  a  veil  over  this  discreditable  controversy.  Parliament 
passed  an  act  on  July  16,  1889,  providing  for  the  purchase  of  the 
company's  plant.  The  company  announced  its  refusal  to  surren- 
der possession,  and  on  September  i,  1889,  the  government  took 
possession  by  force.2 

Such  was  the  termination  of  the  French  telegraph  administra- 
tion's attempt  to  shift  the  risk  of  initial  experimentation  with 
the  telephone  to  the  shoulders  of  private  enterprise.  The  plan 
was  badly  conceived  and  badly  executed.  It  did  not  secure  a 
rapid  and  extensive  utilization  of  the  telephone.  It  did  not  spare 
public  authorities  the  burden  of  experimenting  on  their  own  ac- 
count. It  did  enable  them  to  regain  the  control  of  the  telephone 
when  it  proved  likely  to  become  a  dangerous  competitor  of  their 
telegraphs.  But  in  order  that  the  authorities  might  have  that  privi- 
lege, the  telephone  user  had  to  pay  roundly. 

The  policy  of  calling  in  private  enterprise  in  order  to  undertake 
initial  risks  of  which  public  authorities,  responsible  for  the  con- 
duct of  important  business  undertakings,  desire  to  be  relieved,  is 
a  seductive  one.  It  appears  to  be  an  easy  mode  of  dealing  with 
a  difficult  subject.  In  fact,  it  is  not  easy  to  pursue  this  policy  with 
success.  In  France,  as  applied  to  the  telephone,  the  policy  accom- 
plished the  main  object  in  view,  but  in  a  bungling  manner. 

1  Cochery  Rapport,  pp.  135-148,  contains  a  full  account  of  the  legal  contest  which 
ensued.  The  courts  ultimately  supported  the  telegraph  authorities  in  their  conten- 
tion that  the  secret  agreement  was  invalid.  The  dispute  over  the  amount  of  com- 
pensation due  the  company  for  the  plant  seized  by  the  government  resulted  in  a 
compromise  award.  The  company  claimed  fr.  18,877,633;  the  telegraph  authorities 
were  willing  to  pay  only  fr.  5,068,435.  The  Conseil  d'fitat  on  May  16,  1896,  fixed 
the  amount  of  compensation  at  fr.  11,334,340,  including  interest. 

*  Lacombrade,  pp.  95-105. 


CHAPTER  XVI 

THE  DEVELOPMENT  OF  THE  FRENCH  GOVERNMENTAL  TELEPHONE 

SYSTEM 


IN  France,  contrary  to  the  arrangement  in  Germany  ,^ 
Switzerland,  the  responsibility  for  the  actual  management  of  the 
governmental  telegraphs  (and  hence  also  of  the  telephones)  is 
vested  in  the  same  hands  as  is  that  of  the  postal  service.  This  of- 
ficial, the  Under-Secretary  of  State  for  the  postal  and  telegraph 
service,  is,  however,  subordinated  to  the  Minister  of  Public  Works 
(from  1878  until  1906  to  the  Minister  of  Industry  and  Commerce). 
Both  the  Under-Secretary  and  his  chief,  the  Minister,  are  selected 
by  the  President  of  the  Council  of  Ministers  (that  is,  the  Prime 
Minister),  but  they  hold  office  at  the  pleasure  of  the  represent- 
atives of  the  people,  and  can  be  forced  out  of  office  without 
affecting  in  any  way  the  position  of  the  nominal  head  of  the 
ministry.  Thus  in  his  conduct  of  the  public  offices  he  is  sub- 
jected to  the  control  of  the  representatives  of  the  people,  whose 
property  he  administers. 

First,  there  is  the  control  of  the  organs  of  public  administra- 
tion by  the  political  representatives  of  the  people.  In  France 
this  control  is  theoretically  complete.  The  legislature  is  elected 
by  universal  suffrage,  the  Chamber  of  Deputies  directly,  the  Sen- 
ate indirectly;  and  the  Executive,  or  at  least  the  real  Executive, 
the  Ministers,  are  responsible  to  it  for  their  conduct  of  affairs. 
The  representatives  of  the  people  exercise  their  theoretical  con- 
trol of  the  conduct  of  public  business  through  their  control  of  the 
budget  and,  in  extraordinary  cases,  by  direct  interpellation  of 
the  Ministers,  which  may  be  followed  by  a  vote  of  want  of  confi- 
dence and  the  consequent  resignation  of  the  condemned  officials. 
Ordinarily,  however,  the  deputies  confine  their  criticism  of  the 
conduct  of  public  business  to  the  annual  debate  on  the  budget,1 
in  which  each  branch  of  the  administration  is  forced  to  declare 
1  Cf.  Ren6  Stourm:  Lc  Budget.  6th  edit.,  Paris,  1908. 


282  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  amount  of  money  which  it  desires  to  spend  during  the  en- 
suing year,  and  the  purposes  for  which  each  particular  item  is  to 
be  used. 

Before  attempting  to  discuss  and  vote  the  desired  appropria- 
tions, Parliament  commissions  a  number  of  its  members  to  make 
a  minute  study  of  the  proposals  of  the  administrative  authorities, 
with  a  view  to  determining  the  expediency  of  each  separate  item. 
For  this  purpose  the  commission  on  the  budget  holds  a  number 
of  special  sessions  in  the  fall  of  each  year,  to  which  the  heads  of 
departments  are  often  summoned  in  order  to  give  such  an  account 
of  their  operations  and  plans  as  may  be  desired.  For  convenience 
in  executing  its  task,  the  commission  on  the  budget  is  divided  into 
a  number  of  sections,  to  each  of  which  is  confided  the  labor  of 
criticizing  the  estimates  of  one  department.  Thus  there  is  a  special 
report  each  year  on  the  conduct  of  affairs  by  the  postal  and  tele- 
graph authorities  for  the  preceding  year  and  on  their  plans  for  the 
next.  Only  after  receiving  this  report  does  the  Chamber  as  a  whole 
attempt  to  criticise  the  work  of  the  postal  and  telegraph  authori- 
ties, or  to  suggest  alterations  in  their  plans  for  the  future. 

Besides  the  opportunity  for  criticism  of  the  conduct  of  public 
business  which  is  afforded  by  the  responsibility  of  the  French 
executive  to  the  political  representatives  of  the  people,  an  inde- 
pendent organization  exists  for  the  representation  of  the  special 
interests  of  private  business  men.  The  economic  representatives, 
so  to  speak,  of  French  industry  and  commerce  in  their  professional 
relations  with  the  executive  branch  of  the  government,  are  the 
chambres  de  commerce  and  the  chambres  consultatives  des  arts  et 
manufactures.1 

These  legal  representatives  of  the  "world  of  affairs,"  as  the 
French  would  say,  in  its  relations  with  the  public  authorities  were 
created  by  Napoleon  Bonaparte  in  accordance  with  his  plan  for 
the  reorganization  of  the  administrative  system  of  his  empire. 
Like  most  successful  institutions,  the  chambres  de  commerce  were 
a  modification  of  an  existing  institution  in  response  to  an  altered 

1  Cf.  Maurice  Block:  Dictionnaire  de  I' administration  franqaise,  5th  edit.,  1905, 
articles,  "Chambre  de  commerce,"  etc.  The  official  organ  of  the  French  chambers 
of  commerce  is  the  Journal  des  chambres  de  commerce,  published  since  1882. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  283 

need.  The  first  compulsory  organizations  for  the  purpose  of  repre- 
senting special  economic  interests  were  the  chambers  of  commerce 
which  came  into  existence  in  a  number  of  the  important  commer- 
cial cities  under  the  ancien  regime.  The  local  bodies  often  received 
as  chairman  the  provincial  intendant,  and  the  whole  system  was 
centralized  by  the  erection  of  a  conseil  de  commerce  with  the  func- 
tion of  informing  and  advising  the  Minister  of  Commerce  at  Paris. 
This  organization  fell  a  sacrifice  during  the  Revolution  to  \he 
dominant  distrust  of  organization  in  general.  With  the  recon- 
struction of  French  administration  under  Napoleon,  the  utility  of 
the  old  chambers  of  commerce  was  recognized  and  the  organized 
representation  of  commercial  interests  was  restored.  The  Na- 
poleonic chambers  of  commerce  were  established  over  so  much  of 
Europe  as  was  then  under  French  influence. 

Their  constitution  is  now  regulated  by  the  law  of  April  9,  1898. 
They  are  established  by  decree  of  the  Minister  of  Commerce  and 
Industry,  and  there  must  be  at  least  one  in  each  department  of 
France.  A  chamber  may  have  from  nine  to  twenty-one  members, 
except  that  at  Paris,  which  contains  thirty-six.  Each  member  is 
elected  for  six  years,  one  third  retiring  at  the  end  of  each  second 
year.  The  eligible  electors  comprise  all  business  men,  active  or 
retired,  of  at  least  thirty  years  of  age,  who  have  been  inscribed  on 
the  list  of  business-tax  payers  for  at  least  five  years  and  reside  in 
the  district  which  the  chamber  is  intended  to  represent.  The  names 
of  candidates  for  election  to  chambers  of  commerce  must  be  sub- 
mitted in  advance  to  the  Minister  of  Commerce  and  Industry  for 
his  approval.  The  functions  of  the  chambers  are  to  give  advice 
to  the  minister  on  matters  in  regard  to  which  their  advice  may 
be  sought  and  in  general  to  promote  the  commercial  and  indus- 
trial interests  of  the  localities  which  they  represent.  The  separate 
chambers  of  commerce  are  not  united  in  any  central  organization 
but  report,  each  directly,  to  the  Minister  of  Industry  and  Com- 
merce. Chambers  are  allowed  to  hold  property,  like  corporate 
bodies,  and  are  maintained  by  means  of  a  special  surtax  attached 
to  the  ordinary  business  tax  in  each  district  by  the  chamber  repre- 
senting that  district.  Thus,  in  1907,  the  Chamber  of  Commerce 
at  Paris  represented  the  28,432  persons  who  were  assessed  for 


284  PUBLIC  OWNERSHIP  OF  TELEPHONES 

the  business  tax  on  the  businesses  of  Paris  in  1906.  The  total 
yield  of  the  tax  in  that  year  was  over  fifteen  million  francs,  and 
the  revenue  of  the  Chamber  itself  was  three  hundred  thousand 
francs.  In  1907  there  were  in  all  France  143  chambers  of  com- 
merce.1 

These  economic  representative  organs  were  created  by  Napo- 
leon simply  to  represent  a  portion  of  public  opinion  which  found 
inadequate  representation  under  the  existing  state  of  French  rep- 
resentative institutions.  He  probably  never  intended  that  they 
should  become  anything  more  than  advisory  bodies.  Neverthe- 
less the  chambers  of  commerce  not  only  play  an  important  part 
in  the  public  representation  of  private,  and  especially  of  business 
interests,  but  have  also  been  charged  by  the  public  authorities 
with  the  performance  of  administrative  duties  of  ever  increasing 
importance. 

The  enlistment  of  such  quasi-public  bodies  in  the  work  of  public 
administration  cannot  be  understood  without  some  reference  to 
the  financial  condition  of  the  French  government.  French  finances 
had  long  suffered  from  chronic  deficits.  The  disastrous  war  of 
1870-71  with  Prussia,  together  with  the  necessity  of  preparing  to 
make  a  better  fight  the  next  time,  greatly  increased  the  need  for 
public  revenue.  For  years,  without  a  break,  current  expenditures 
regularly  exceeded  the  receipts.  The  nation  sank  ever  deeper  and 
deeper  in  debt.  Colson  has  computed  the  increase  of  the  French 
national  indebtedness  caused  by  these  recurrent  annual  deficits, 
after  making  due  allowance  for  payments  towards  amortization 

1  Docs,  parl.,  Ch.  des  dep.,  1907.  Annexe  no.  1239.  Rapport  sur  Vexercice  pour 
Vannee  1908  (Ministere  du  Commerce  et  de  PIndustrie),  p.  1689.  At  the  same  time 
there  were  forty-six  chambres  consultatvoes  des  arts  et  manufactures  (Ibid.,  p.  1690). 
These  chambers  were  originally  created  with  a  view  to  the  representation  of  the 
arts  and  crafts,  whereas  the  chambers  of  commerce  were  intended  to  represent  only 
the  strictly  mercantile  undertakings.  But  as  a  result  of  the  economic  changes  of  the 
nineteenth  century,  the  successors  of  the  independent  artisans  and  handicraftsmen 
of  a  century  ago,  so  far  as  they  have  not  become  dependent  wage-earners,  have,  for 
the  most  part,  lost  their  interest  in  a  separate  economic  representation.  The  chambers 
of  commerce  have  encroached  more  and  more  on  those  of  the  handicrafts,  so  that 
at  present  the  latter  seem  to  have  outlived  their  usefulness.  In  1907  their  amalga- 
mation with  the  chambers  of  commerce  was  recommended  by  a  commission  of  the 
Chamber  of  Deputies  on  the  budget  as  the  best  means  of  disposing  of  an  obsolete 
institution. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  285 

and  omitting  the  Prussian  War  indemnity  of  6, coo  million  francs.1 
The  total  public  debt  in  1903,  national  and  local,  amounted  to 
some  35,000  million  francs.  Of  this  enormous  sum  9,732  million 
francs,  or  more  than  one  fourth,  was  the  result  of  the  succes- 
sive annual  deficits  since  1869.  These  deficits  actually  began  as 
early  as  1836.  Thereafter  for  two  whole  generations  the  French 
government  never  once  succeeded  in  making  both  ends  meet. 
With  the  ever  growing  accumulation  of  past  obligations  staring 
them  in  the  face,  the  French  deputies  were  very  loath  to  in- 
crease the  national  liabilities,  except  for  the  one  supremely  im- 
portant purpose  of  the  national  defense. 

The  chief  stress  in  the  argument  of  the  French  telegraph  ad- 
ministration, which  resulted  in  the  adoption  of  the  policy  of  pub- 
lic ownership  in  1889,  was  laid  not  on  the  theoretical  advantage 
of  that  policy,  but  on  the  ways  and  means  of  carrying  it  into  ef- 
fect without  putting  a  financial  burden  on  the  public  treasury.2 
Once  the  legislative  branch  of  the  government  was  convinced  that 
the  retention  of  the  telephone  in  the  hands  of  private  enterprise 
meant  the  exposure  of  the  public  revenue  from  the  telegraphs  to 
the  danger  of  serious  depletion,  its  chief  concern  was  to  ascertain 
that  the  acquisition  of  the  telephones  could  be  carried  through 
without  subjecting  the  public  revenues  to  even  greater  liabilities. 

That  this  could  be  done  the  telegraph  authorities  believed  they 
had  already  demonstrated  by  their  own  experimentation  with  the 
conduct  of  exchange  systems.  The  conditions  for  joining  the  gov- 
ernmental telephone  exchanges,  which  had  been  established  by 
virtue  of  the  law  of  1882,  were  the  following: 3  The  annual  rate 
was  fixed  at  250  francs,  which  was  reduced  to  200  francs  in  ex- 
changes with  more  than  300  subscribers.  In  addition  to  this  charge, 
an  annual  contribution  was  required  to  cover  the  expenses  of  the 
connection  of  125  francs  per  kilometer  of  single  wire  on  an  existing 
pole-line,  or  250  francs  if  a  special  pole-line  had  to  be  constructed. 
The  charge  per  kilometer  was  reduced  to  125  francs  for  lines  sup- 

1  C.  Colson:  Cours  d'&conomie  politique,  tome  iii,  p.  384.     Paris,  1905. 

1  Cochery  Rapport,  pp.  122-134. 

1  Rousseau,  Appendix  2.  Lacombrade,  (Ch.  3,  part  i)  states  the  early  rate  to 
have  been  200  frs.,  which  was  reduced  to  150  frs.  when  the  number  of  subscribers 
surpassed  200. 


286  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ported  by  roof-standards,  and  raised  to  500  francs  for  lines  con- 
structed underground.  This  contribution  might  be  paid  down  in 
a  lump  sum  in  advance,  or  distributed  over  a  period  of  four  years 
in  equal  annual  installments.  In  the  latter  case  the  subscriber  was 
bound  to  sign  a  contract  for  a  like  period.  The  ordinary  contract 
ran  only  one  year.  Besides  this  contribution  the  subscriber  was 
required  to  buy  his  own  telephone  instrument,  choosing  from 
models  approved  by  the  telegraph  department,  and  to  defray  the 
expense  of  installation. 

This  policy  was  severely  criticised  at  the  time  as  an  unwarrant- 
able shifting  of  the  business  man's  burden  to  his  customer.1  The 
latter,  it  was  argued,  should  be  required  to  pay  only  for  the  ser- 
vice rendered  him,  and  not  to  contribute  to  the  capital  of  the  un- 
dertaking. The  government  sought  to  justify  its  policy  on  the 
ground  that  the  telephone  was  not  of  general  benefit,  but  of  use 
only  to  a  small  class  in  the  community,2  and  that  the  members  of 
this  class  could  be  called  on  to  equip  themselves  with  telephone 
paraphernalia  with  as  much  propriety  as  with  office  furniture  of 
any  other  sort.  The  real  reason,  however,  for  the  government's 
policy  was  not  that  the  method  chosen  served  best  for  conducting 
the  telephone  business,  but  that  the  telegraph  authorities  could  not 
so  easily  obtain  their  capital  in  any  other  way.  By  this  means  they 
were  able  to  make  the  slender  appropriation  which  Parliament  had 
granted  them  go  much  further  than  would  otherwise  have  been 
possible. 

This  policy  was  continued  throughout  the  period  of  mixed  private 
and  public  ownership.  On  the  average,  thereby,  the  entire  expense 
of  construction  was  recouped  in  two  years  and  eight  and  one  half 
months.3  How  rapidly  the  company  recouped  its  capital  with  its 
inflated  charges  of  600  and  400  francs  can  only  be  conjectured.  In 
all  probability  the  company's  more  insidious  method  of  recovering 
its  capital  was  equally,  if  not  more,  efficacious.  The  government's 
system  of  finance  sufficed  for  the  exchanges  which  were  established 
with  the  original  appropriation  of  1882.  But  when  the  original 
appropriation  was  exhausted  there  was  no  means  of  erecting  new 

1  Rousseau,  p.  15.  *  Ibid.,  pp.  58-59. 

*  Cochery  Rapport,  pp.  10-14. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM          287 

exchanges  except  with  the  profits  of  the  existing  ones.  Hence  work 
was  practically  confined  to  the  few  places  in  which  it  was  originally 
inaugurated.  When  other  cities  began  to  call  for  a  governmental 
telephone  exchange,  their  applications  had  to  be  refused  until  a 
new  method  of  financing  could  be  devised. 

The  solution  of  the  difficulty  was  suggested  in  1888  by  the  city 
of  Limoges.1  The  local  authorities  of  that  city  desired  a  speedier 
creation  of  telephone  facilities  in  their  community  than  they  could 
hope  to  secure  as  matters  then  stood  either  from  the  company  or 
from  the  government.  Consequently  they  offered  to  advance  the 
cost  of  construction  of  the  central  office  and  of  equipment  without 
interest,  in  the  expectation  of  being  repaid  as  quickly  as  possible 
out  of  the  proceeds  of  operation.  It  was  estimated  that  these  costs 
would  amount  to  about  18,000  francs,  or  350  francs  for  each  of  the 
50  subscribers  who  had  signified  their  intention  of  participating  in 
the  scheme.  Each  subscriber's  line  would  cost  on  the  average  150 
francs  a  kilometer,  and  the  operating  expenses  and  maintenance 
charges  for  each  of  the  first  two  years  would  come  to  about  100 
francs  each  more.  By  fixing  the  annual  subscription  at  200  francs 
and  in  addition  assessing  against  each  subscriber  his  share  of  the 
running  expenses,  as  well  as  the  cost  of  his  own  line  and  equipment, 
as  uhder  the  existing  arrangement  in  the  government's  exchange 
systems,  the  portion  of  the  initial  expenses  advanced  by  the  munici- 
pal authorities  would  be  recouped  within  two  years,  provided  the 
subscribers  were  permitted  to  pay  their  assessments  one  third  in 
advance  and  the  balance  in  two  annual  installments.  Thus  during 
the  first  two  years  of  the  service  the  subscriber  would  pay  no  more 
than  the  annual  rental  then  charged  by  the  company.  After  that 
time  he  would  obtain  the  service  much  more  cheaply  than  under 
the  company's  schedule  of  rates.  The  municipal  authorities  would 
quickly  receive  back  their  advances  and  then  turn  the  system  over 
to  the  telegraph  authorities.  The  latter  would  thus  be  relieved  of 
the  initial  burden  of  establishing  the  service,  and  after  two  years 
would  receive  a  valuable  plant  free  of  charge.  The  expenses  of 

1  Cochery  Rapport,  pp.  37-41.  Cf.  Rapport  sur  les  projets  de  lot  concernant 
Vttdblissement  des  reseaux  telephoniques  dans  les  villes  de  Limoges  et  Grenoble.  Docs, 
parl.,  Ch.  des  de"p.,  1888,  No.  3164. 


288  PUBLIC  OWNERSHIP  OF  TELEPHONES 

operation  and  maintenance  would  thereafter  be  amply  covered  by 
the  annual  subscription. 

This  plan  was  beautifully  adapted  to  the  needs  of  the  hour.  On 
the  one  hand,  those  who  wanted  a  telephone  service  were  provided 
with  a  mode  of  getting  it.  On  the  other,  the  government  was  en- 
abled to  go  into  the  telephone  business  without  increasing  the 
financial  burdens  of  the  public  treasury.  The  plan  was  no  sooner 
proposed  than  other  cities  cordially  indorsed  it.  The  telegraph 
authorities  gave  it  their  hearty  approval.  In  1888  two  bills  were 
enacted  authorizing  the  construction  of  exchanges  in  accordance 
with  this  plan  in  the  cities  of  Limoges  and  Grenoble.1 

The  proposal  of  the  telegraph  authorities  in  1889  was  to  extend 
this  method  of  operation  to  the  entire  French  telephone  system 
after  the  acquisition  of  the  exchanges  then  in  possession  of  the  So- 
ciete  generate  des  telephones.  In  order  to  do  this  the  only  appro- 
priation that  Parliament  would  be  called  upon  to  make  was  the 
sum  required  to  purchase  the  plant  of  the  company.  Obviously, 
none  of  it  would  have  to  be  paid  at  once.  Already  fifteen  cities, 
besides  those  provided  for  in  the  acts  of  1888,  had  applied  for  per- 
mission to  establish  exchanges  on  similar  terms.2  The  plan  was 
certain  to  go  into  effect  under  favorable  auspices  if  Parliament 
would  only  accept  it.  Parliament  did  accept  it.  The  same  law 
which  provided  for  the  purchase  of  the  plant  of  the  Societe  generate 
authorized  the  employment  of  the  Limoges  plan  for  financing  the 
construction  of  new  exchange  systems.3 

In  the  following  year  the  same  plan  was  extended  to  the  finan- 
cing of  long-distance  lines.4  It  was  believed  that  here  again  the 
local  public  authorities  were  better  situated  than  the  central  au- 
thorities for  ascertaining  the  local  needs  and  in  consequence  would 
be  less  likely  to  engage  in  unwise  construction.  The  law  of  1890 
placed  the  burden  of  the  construction  of  long-distance  lines,  as 
of  local  exchanges  by  the  law  of  1889,  on  the  shoulders  of  the  local 
authorities.  The  expenses  of  operation  and  maintenance,  however, 
were  to  be  borne  by  the  central  authorities  from  the  start.  Both 
the  law  of  1889  and  that  of  1890  contemplated  the  sharing  of  the 

1  Loi  du  22  d6c.,  1888.  '  Loi  du  16  juillet,  1889. 

1  Lacombrade,  p.  92.  4  Loi  du  20  mai,  1890. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM          289 

burdens  of  the  local  authorities  by  private  and  non-political  pub- 
lic organizations.  The  chambers  of  commerce  especially  were  ex- 
pected to  bear  an  important  part  of  the  burdens  of  local  initiative, 
since  they  represented  the  only  portion  of  the  community  which 
up  to  that  time  had  displayed  any  interest  in  the  telephone. 

The  operation  of  this  development  policy  can  be  best  explained 
by  describing  the  actual  telephone  development  in  some  particular 
locality.  To  an  official  of  the  French  telephone  service,  stationed 
in  Nimes,  I  am  indebted  for  the  following  narrative.1 

Nimes  is  a  city  of  some  commercial  importance,  situated  in  the 
south  of  France,  the  capital  of  the  department  of  Card,  with  a 
population  in  1901  of  80,605.  The  establishment  of  an  exchange 
system  was  brought  about  by  the  personal  efforts  of  a  local  busi- 
ness man,  M.  Maurice  Negre.  By  dint  of  special  solicitation  and 
not  without  considerable  difficulty,  he  secured  thirty-two  sub- 
scribers, and  on  March  i,  1892,  the  exchange  was  opened.  In 
order  to  secure  a  wider  utility  for  his  undertaking,  M.  Negre 
hastened  to  bring  it  into  connection  with  the  neighboring  cities  of 
commercial  importance.  In  August  of  the  same  year  he  was  able 
to  bring  about  the  construction  of  a  long-distance  line  to  Cette 
on  the  Mediterranean  by  way  of  Montpellier  and  Narbonne.  The 
sum  advanced  by  the  local  interests  of  Nimes  to  the  telegraph 
administration  to  defray  the  cost  of  construction  of  the  exchange 
was  14,000  francs,  and  was  wholly  paid  back  in  February,  1893. 
The  long-distance  line  also  cost  the  local  interests  14,000  francs, 
and  the  advances  were  all  repaid  in  February,  1894.  Within  three 
years,  communication  was  established  with  Marseilles,  Toulouse, 
Bordeaux,  Limoges,  and  other  places,  but  not  yet  with  Paris.  At 
last,  in  1896,  by  means  of  a  combination  effected  between  the 
departments  of  Card  and  Herault,  the  cities  of  Nimes  and  Mont- 
pellier, and  the  Chamber  of  Commerce  of  Avignon,  long-distance 
connection  with  Paris  was  established  by  way  of  Lyons.  This 
line  served  also  to  connect  Paris  and  Lyons  with  Avignon  and 
Cette.  The  share  of  the  costs  borne  by  the  department  of  Gard 
was  80,000  francs,  and  by  the  city  of  Nimes  25,000.  About  this 

1  fidouard  Renard:  Les  Ttltgraphcs  et  le  Ttltphone  dans  le  dtpartement  du  Gard. 
Nimes,  1897,  pp.  77-92. 


290  PUBLIC  OWNERSHIP  OF  TELEPHONES 

time  a  project  was  brought  up  to  connect  with  one  another  the 
chief  places  in  all  the  cantons  of  the  department,  but  was  aban- 
doned as  too  big  an  undertaking.  The  telegraph  administra- 
tion demanded  a  contribution  of  431,000  francs,  and  the  return 
seemed  too  uncertain  to  warrant  the  department  in  incurring  the 
risk. 

Meanwhile  the  same  sort  of  private  and  local  initiative  was 
bringing  about  the  creation  of  exchange  systems  and  the  exten- 
sion of  long-distance  communication  throughout  France.  In  the 
first  five  years  after  the  adoption  of  the  Limoges  plan,  the  number 
of  exchanges  in  operation  increased  more  than  tenfold.  Every- 
where the  initiative  came  from  enterprising  local  business  men 
acting  sometimes  through  the  local  municipal  and  departmental 
councils  and  sometimes,  especially  in  the  construction  of  long- 
distance lines,  through  the  chambers  of  commerce.  The  local 
political  and  commercial  representative  bodies  were  quick  to 
recognize  and  quick  to  respond  to  the  special  local  needs  exist- 
ing in  their  districts.  As  a  method  of  adjusting  the  supply  of  a 
monopolistic  service  to  a  purely  local  need,  the  French  develop- 
ment policy  possessed  distinct  merits. 

In  certain  respects  this  French  system  of  local  initiative  ex- 
celled the  Scandinavian  cooperative  system.1  Under  any  system 
of  cooperation  a  difficulty  arises  as  soon  as  the  original  cooperators 
are  called  on  to  admit  later  comers  to  a  share  in  their  undertaking. 
It  is  often  considered  unfair  that  the  founders  should  make  all  the 
initial  sacrifices  and  the  later  comers  thus  reap  where  they  have 
not  sown.  Yet  a  satisfactory  method  of  apportioning  initial  ex- 
penses among  future  members  of  a  cooperative  undertaking  is 
exceedingly  difficult  to  devise.  The  original  cooperators  must 
either  become  practically  the  same  as  stockholders  in  an  ordinary 
joint  stock  company,  or  forego  all  tangible  reward  for  their  ser- 
vices in  starting  the  enterprise.  In  the  former  event  the  advan- 
tages of  cooperation  become  illusory;  in  the  latter  they  remain 
real  but  are  greater  for  the  shiftless  and  mean  individuals  who 
wait  longest,  than  for  the  public-spirited  individuals  who  made 
the  initial  sacrifices.  The  French  plan  required  the  founders  of  a 
1  Described  in  Part  IV\  ch.xxi. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  291 

local  telephone  system  to  make  sacrifices  from  which  later  comers 
would  derive  the  benefit.  The  fact  that  the  initial  investment 
was  to  be  made  at  the  expense  of  public  authorities  did  not  en- 
able them  to  distribute  the  entire  burden  evenly  throughout  the 
entire  local  community,  since  the  original  advances  were  recouped 
by  special  assessments  on  those  subscribers  who  joined  the  system 
before  its  transfer  to  the  central  authorities.  However,  the  burden 
of  interest  on  the  original  loan  would  be  diffused  throughout, the 
community  represented  by  the  local  authority  which  should  incur 
the  loan.  To  that  extent  the  French  plan  avoided  some  of  the 
disadvantages  of  private  voluntary  cooperation  by  combining  it 
with  public  compulsory  cooperation. 

Its  weak  points,  however,  were  serious.  In  the  first  place,  the 
local  authorities  were  required  to  make  a  real  financial  sacrifice 
and  yet  were  deprived  of  all  expectation  of  reward;  for  the  local 
authorities  paid  the  interest  on  the  original  loans,  whereas  the 
telegraph  administration  reaped  the  profits  as  soon  as  they  were 
earned.  The  loans  themselves  were  repaid,  but  the  interest  was 
not.  This  failure  to  repay  the  local  authorities  in  full  was  wholly 
unwarrantable  and  in  practice  simply  amounted  to  a  tax  on  tele- 
phone development.  In  general,  the  expectation  of  future  profits 
compensates  for  preliminary  losses.  Under  this  plan,  however,  if 
the  burden  of  interest  should  have  to  be  borne  for  an  unexpectedly 
long  period,  there  would  be  no  hope  of  compensation.  The  de- 
privation of  the  expectation  of  profit  alone  was  enough  to  check 
the  development  of  the  industry,  but  the  impossibility  of  recover- 
ing the  sums  paid  in  interest  made  the  matter  worse.  The  effect 
was  to  discourage  the  taking  of  risks  which  would  have  been  un- 
dertaken under  normal  conditions. 

In  the  second  place,  local  initiative  was  seriously  defective  as 
an  agency  for  maintaining  and  extending  the  telephone  systems. 
At  first,  to  be  sure,  fresh  construction  was  undertaken  freely. 
The  accumulated  unsatisfied  wants  of  a  decade  of  lethargic  man- 
agement on  the  part  of  both  the  company  and  the  telegraph  admin- 
istration had  to  be  met.  But  when  these  had  been  satisfied  further 
construction  began  to  drag.  The  local  authorities  were  in  no  posi- 
tion to  reconstruct  exchanges,  which  had  been  turned  over  to  the 


2Q2  PUBLIC  OWNERSHIP  OF  TELEPHONES 

central  authorities  and  had  since  become  too  small  to  handle  the 
increased  local  traffic,  or  in  which  the  apparatus  was  worn  out  or 
become  obsolete  and  required  to  be  replaced  by  new.  Nor  was 
their  position  with  regard  to  the  long-distance  branch  of  the  busi- 
ness much  better  when  it  happened  that  the  lines  originally  turned 
over  to  the  central  authorities  became  inadequate.  Local  authori- 
ties which  had  advanced  the  funds  for  the  first  long-distance  con- 
nection between  two  places  were  reluctant  to  undertake  the  second. 
They  argued  that  once  the  government  had  been  given  possession 
of  a  line,  it  was  bound  not  only  to  keep  it  in  good  order  but  also 
to  make  extensions  when  needed.  The  local  authorities  willingly 
started  the  service,  but  they  expected  the  telegraph  administra- 
tion to  maintain  it.  To  be  sure,  some  local  interests  which  felt  a 
particular  need  with  peculiar  intensity  would  make  a  correspond- 
ing sacrifice  rather  than  dispense  with  the  service  that  they  de- 
sired. Thus  in  1895  the  long-distance  service  between  Paris  and 
Le  Havre  became  inadequate  to  accommodate  the  increasing  traf- 
fic. Two  lines  were  already  in  operation,  but  a  third  was  urgently 
needed.  Since  the  government  neglected  to  act,  the  Chambers  of 
Commerce  of  Paris  and  Le  Havre  took  the  matter  into  their  own 
hands.  The  cost  of  construction  was  estimated  by  the  government 
at  92,000  francs,  and  was  furnished  three  fourths  by  the  Chamber 
at  Le  Havre  and  the  balance  by  that  at  Paris.  The  line  was  then 
promptly  erected.1  In  general,  however,  the  refusal  of  the  tele- 
graph administration  to  relieve  the  local  authorities  of  the  task 
of  improving  or  extending  telephone  systems  which  had  once  been 
turned  over  to  it,  tended  to  prevent  the  further  improvement  or 
extension  of  such  systems. 

Finally  the  premises  on  which  the  French  system  of  local  initia- 
tive was  based  were  false.  The  telephone  does  not  meet  a  purely 
local  need.  On  the  contrary  its  usefulness  increases,  other  things 
being  equal,  the  greater  the  distances  between  the  localities  which 
it  serves.  In  France,  indeed,  the  need  is  greater  for  communica- 
tion between  Paris  and  the  provinces  than  for  communication 
between  different  provincial  departments,  even  between  those 
that  are  comparatively  close  together.  And  local  exchange  sys- 
1  Journal  de  V&ectricitt,  June  29,  1895. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  293 

terns  derive  much  of  their  utility  from  their  capacity  for  making 
the  long-distance  service  more  available  to  the  local  community. 
This  was  the  very  class  of  construction  which  the  French  system 
was  least  capable  of  coping  with.  The  local  authorities  might  meet 
the  local  needs  tolerably  well  at  first,  but  were  in  no  position  to 
plan  and  carry  out  properly  the  construction  of  the  main  trunk 
lines.  The  decentralization  of  initiative  was  bound  to  result  in  an 
uneconomical  lack  of  coordination  in  the  planning  of  the  most 
important  long-distance  connections. 

The  defects  of  the  French  development  policy  were  clearly  re- 
cognized as  early  as  the  year  1894.  The  commission  of  the  Cham- 
ber of  Deputies  which  examined  the  proposals  of  the  postal  and 
telegraph  administration  for  expenditures  on  the  telephone  service 
during  the  ensuing  year  set  forth  these  defects  in  its  report  to  the 
Chamber.1  "  The  majority  of  the  lines,"  it  observed 2  with  refer- 
ence to  the  inter-urban  telephone  connections,  "  have  been  origi- 
nally established  to  satisfy  the  modest  desires  of  the  local  com- 
mercial interests.  These  were  at  first  limited  to  the  opening  up  of 
telephone  communication  with  the  most  important  neighboring 
city  with  which  the  local  interests  were  connected  by  commercial 
ties.  With  the  development  of  these  local  inter-urban  systems, 
however,  new  desires  have  sprung  up,  and  the  majority  of  the 
places  now  supplied  with  telephone  service  wish  to  be  connected 
with  Paris.  ...  In  order  to  promote  the  further  development  of 
telephony,  the  construction  of  these  main  trunk  lines  will  very 
soon  be  indispensable,  and  it  is  doubtful  if  the  funds  can  be  se- 
cured from  the  local  interests.  It  is  furthermore  easy  to  see  that 
direct  appropriations  by  the  central  government  itself  will  shortly 
be  required  in  order  to  make  the  needed  improvements  and  exten- 
sions in  the  local  exchange  systems." 

Yet  the  commission,  strangely  enough,  did  not  practice  its  own 
precepts.  On  the  contrary  it  pointed  with  obvious  pride  to  the 
fact  that  it  had  cut  down  by  ten  per  cent  the  increase  of  expendi- 
ture proposed  in  the  estimates  of  the  telegraph  administration.8 
A  few  pages  farther  on  in  its  report  it  declared  the  telephone  ser- 

1  Docs,  parl.,  Ch.  des  d6p.,  1894,  Annexe  no.  966,  pp.  1861  ff. 
8  Ibid.,  p.  1888.  «  Ibid.,  p.  1861. 


294  PUBLIC  OWNERSHIP  OF  TELEPHONES 

vice  in  Paris  to  be  unsatisfactory,  and  blamed  the  administration 
for  its  failure  to  show  more  enterprise  in  the  conduct  of  its  affairs, 
and  for  not  asking  for  bigger  appropriations  in  order  to  make  the 
necessary  improvements  in  the  service.1  The  apparent  contradic- 
tion in  the  attitude  of  the  commission  on  the  budget  can  be  ex- 
plained only  by  its  desire  to  economize.  At  that  time  parliamen- 
tary financiers  were  possessed  by  the  one  idea  of  economy,  highly 
laudable  in  itself,  but  under  the  existing  conditions  unfortunate 
for  the  telephone  service.  The  result  was  that  nothing  was  done 
to  put  more  adequate  means  at  the  disposal  of  the  telephone  ad- 
ministration, and  matters  were  allowed  to  drift  along  under  the 
confessedly  defective  development  policy. 

It  was  not  until  1899  that  the  telegraph  authorities  made  any 
change.  At  that  time  they  sent  out  a  circular  letter  to  the  prefects 
of  departments,  inviting  them  in  connection  with  the  depart- 
mental councils  to  take  up  the  work  of  long-distance  telephone 
construction  where  it  had  been  left  by  the  municipal  and  other 
local  authorities  and  to  coordinate  the  work  of  extension.2  They 
were  urged  to  arrange  for  the  connection  of  the  communes  with 
the  chief  towns  of  the  cantons  and  the  latter  with  those  of  the  de- 
partment. Then  the  main  long-distance  lines  should  be  so  con- 
structed as  to  connect  these  departmental  centers  with  Paris. 
This  letter  gave  a  new  impetus  to  long-distance  construction  and 
brought  about  a  considerable  improvement  in  the  state  of  long- 
distance connections. 

Up  to  December  31,  1902,  the  total  amount  of  the  advances 
made  by  local  authorities,  both  departmental  and  municipal,  by 
chambers  of  commerce  and  by  private  individuals,  was  nearly 
40,000,000  francs.3  Of  this  amount  not  quite  18,000,000  francs 
had  been  repaid.  Most  of  the  sums  advanced,  however,  were 
recovered  .within  half  a  dozen  years,  and  a  large  portion  within 
two  or  three  years.  Yet  this  was  a  wholly  inadequate  investment 
with  which  to  supply  a  nation  of  nearly  40,000,000  people  with 
telephones.  Moreover,  since  the  Limoges  plan  of  financing  fresh 
construction  made  no  provision  for  replacing  obsolete  plant  with 

1  Docs,  parl.,  Ch.  des  d£p.t  1894,  Annexe  no.  966,  p.  1863. 

2  Lacombrade,  p.  112.  8  Ibid.,  p.  259. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  295 

new  or  improved  material  or  for  reconstructing  exchange  offices 
which  had  become  too  small  for  the  increase  of  traffic,  the  French 
telephone  system  did  not  even  handle  well  the  stunted  telephone 
business  which  it  did  try  to  handle.  As  time  went  on  the  French 
telephone  system  bade  fair  to  become  less  and  less  adequate  to 
meet  the  demands  made  upon  it  and  less  and  less  efficient  in  per- 
forming this  inadequate  service.  In  1900  the  French  first  began 
to  speak  of  a  telephone  crisis.1 

At  that  time  some  of  the  most  important  provincial  cities  had 
no  direct  connection  with  Paris.  Many  long-distance  lines  were  so 
overloaded  with  traffic  during  the  busier  portions  of  the  day  that 
telephone  users,  discouraged  by  the  long  waits,  frequently  aban- 
doned their  attempts  to  secure  the  connection  for  which  they  had 
asked.  The  local  exchange  service  in  the  more  populous  centers 
was  even  worse.  At  Lille  the  multiple  switchboard  was  completely 
utilized  and  additional  subscribers  had  to  be  accommodated  on  sup- 
plementary switchboards  of  an  obsolete  pattern.  This  caused  both 
loss  of  time  and  needless  expense.  At  Paris  the  conditions  were 
just  as  bad.  The  increase  of  facilities  had  long  since  ceased  to 
keep  pace  with  the  growth  of  the  use  of  the  telephone,  and  the 
methods  of  operation  were  as  vexatious  as  they  were  antiquated. 
These  conditions  were  becoming  worse  instead  of  better,  and  were 
bound  to  continue  to  become  worse  so  long  as  the  prevailing  pol- 
icy was  maintained. 

This  gloomy  prediction  was  the  official  forecast  of  the  head  of 
the  French  postal  and  telegraph  administration.2  A.  Millerand, 
one  of  the  more  conservative  of  the  leaders  of  the  socialist  party 
in  France,  had  been  given  that  place  in  the  radical  cabinet  of 
Waldeck-Rousseau.  He  was  a  man  of  real  administrative  ability, 
and  was  especially  qualified  for  his  position  by  earlier  experience 
in  the  Chamber  of  Deputies  on  the  commissions  to  which  the 
financial  estimates  of  the  postal  and  telegraph  services  had  been 
referred.  On  being  appointed  to  a  cabinet  position  he  attacked 
his  new  duties  with  a  genuine  zeal  for  reform. 

1  L'ficonomiste  francais,  1901,  p.  727. 

2  Rapport  au  President  de  la  RipuUique  de  M.  Millerand  du  ir  mai,  igoo.  Journal 
officiel  du  12  mai,  igoo,  pp.  2985-3012.    Cited  as  Millerand. 


296  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  time  had  come,  he  declared,1  for  the  telegraph  authorities 
to  dispense  with  local  and  private  contributions  and  to  extend 
the  telephone  service  hereafter  out  of  the  national  resources.  In 
regard  to  the  long  distance  business,  he  observed:  "  We  shall  be 
able,  indeed,  under  the  pressure  of  the  necessities  of  the  econo- 
mic struggle  for  existence  to  find  still  a  few  persons  who  will  be 
willing  to  make  sacrifices  in  order  to  create  new  means  of  com- 
munication, but  it  will  be  difficult  to  exact  fresh  financial  support 
for  the  doubling  of  the  existing  lines  which  have  been  rendered  in- 
adequate by  the  increase  of  traffic,  or  to  establish  inter-urban  con- 
nections which  are  of  no  particular  concern,  but  are  needed  in  the 
interests  of  the  service  as  a  whole."  And  again  he  remarked  in 
regard  to  the  exchange  business,  "  The  inefficiency  of  our  busi- 
ness methods  is  only  equaled  by  the  inefficiency  of  our  anti- 
quated apparatus  and  the  inadequacy  of  our  personnel."  He  es- 
timated that  one  hundred  and  thirty  additional  operators  were 
needed  at  once.  Worst  of  all,  excessively  high  rates  were  main- 
tained, not  in  order  to  avoid  a  deficit  (for  the  service  was  yielding 
a  good  profit),  "  but  as  a  dike  against  the  too  rapid  increase  of  the 
number  of  subscribers."  2 

The  cause  of  the  trouble  he  ascribed  to  the  failure  of  Parliament 
to  make  adequate  appropriations.3  For  example,  since  the  end  of 
1897  only  one  and  three  quarter  million  francs  had  been  appropri- 
ated to  be  applied  to  the  general  needs  of  the  exchange  system  at 
Paris.  The  Limoges  plan  of  finance  was  bound  to  break  down  as 
soon  as  the  initial  work  of  establishing  local  systems  was  com- 
pleted, yet  Parliament  still  failed  to  recognize  that  a  great  business 
like  the  telephone  could  not  be  properly  carried  on  and  extended 
except  by  the  free  use  of  fresh  capital  supplied  by  the  central 
authorities  themselves.  Millerand  outlined  a  comprehensive  plan 
of  reconstruction  and  extension,  the  adoption  of  which  alone 
would  place  the  telephone  system  in  a  position  to  yield  the 
maximum  service  to  the  community.  At  the  same  time,  the 

1  Millerand,  pp.  2997-3000,  contains  that  part  of  the  discussion  which  relates  to 
the  telephones;  the  entire  postal  and  telegraph  service  was  declared  to  be  in  need  of 
reorganization. 

2  Cf.  ch.  xviii,  post.  *  Millerand,  p.  2997. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM          297 

rates,  especially  the  exorbitant  rate  in  Paris,  should  be  reduced. 
In  order  to  accomplish  these  reforms,  however,  Parliament  must 
appropriate  money.  "  The  investment,"  he  declared,  "is  so  ex- 
cellent and  so  certain  that  no  business  man  would  hesitate  to 
sink  his  capital  in  the  enterprise."  l  But  would  Parliament  do 
it?  Parliament  would  not. 

The  French  deputies  maintained  the  ground  they  had  always 
held.  The  government's  financial  position  had  improved  some- 
what during  the  last  decade.  The  deficits  were  no  longer  so  large 
as  they  formerly  had  been.  Even  a  small  surplus  was  obtained 
at  the  end  of  the  century.  The  postal  and  telegraph  revenues, 
however,  had  been  an  important  factor  in  the  establishment  of 
budgetary  equilibrium.  Neither  the  deputies  nor  the  ministers 
themselves  wished  to  risk  any  portion  of  the  public  revenues. 
Consequently  they  declined  to  burden  the  budget  with  appro- 
priations for  defraying  the  cost  of  telephone  construction.  The 
telegraph  administration  was  left  as  before  to  devise  its  own 
means  of  raising  the  capital  required  to  carry  on  the  business. 

In  its  refusal  to  substitute  a  policy  of  central  initiative  for  the 
Limoges  plan,  Parliament  appeared  on  the  whole  to  have  the  sup- 
port of  the  business  interests  of  the  community.  Indeed,  the  latter 
were  no  less  averse  to  appropriating  the  public  money  for  expen- 
diture on  the  telephone  system,  than  were  their  responsible  repre- 
sentatives. The  official  organ  of  the  French  chambers  of  com- 
merce commented  on  Millerand's  report  and  proposals  in  its  next 
issue.2  Business  interests,  it  observed,  appreciated  the  fact  that 
the  government  at  last  recognized  the  unsatisfactory  state  of  the 
postal  and  telegraph  service,  but  they  deplored  the  nature  of  the 
means  selected  to  bring  about  an  improvement.  Millerand  would 
meet  with  more  approval  for  his  projects,  the  commentator  con- 
tinued, if  he  would  confine  his  attention  to  internal  economies  in 
the  conduct  of  his  department  and  dispense  with  increased  ap- 
propriations. Thus  Millerand,  the  enterprising,  met  with  little 
encouragement  from  that  quarter. 

1  Ibid.,  p.  2998. 

*  Le  Journal  des  chambres  de  commerce  et  de  Vindustrie,  des  chambres  consultative*, 
ct  des  chambres  syndicales,  May  25,  1900,  p.  231. 


298  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Despite  the  cold  reception  accorded  to  his  report,  Millerand 
felt  able  a  year  later  to  issue  a  decree,  promising  the  speedy  in- 
troduction of  the  more  urgent  improvements  in  the  telephone 
system.1  A  number  of  exchanges,  especially  in  Paris,  were  to  be 
reconstructed  and  enlarged  at  once.  These  alterations  would  be 
completed  by  the  end  of  the  following  year  (1902).  Then  the  flat 
rate  in  Paris  should  be  reduced  from  400  to  300  francs  and  at  Lyons 
from  300  to  250  francs.  Subscribers  would  still  be  obliged  to  fur- 
nish their  own  telephone  instruments  and,  outside  of  Paris  and 
Lyons,  to  defray  the  cost  of  connection  between  the  central  office 
and  the  subscriber's  station.  Besides  the  improvement  of  the 
exchange  service,  the  decree  promised  the  construction  of  addi- 
tional long  distance  lines. 

The  most  important  of  these  changes,  the  reduction  of  the  flat 
rate  at  Paris  and  Lyons,  was  conditional  on  the  enlargement  of 
the  exchanges  in  those  cities.  Unless  this  were  done,  the  increased 
business  that  would  follow  the  reduction  of  rates  could  not  be 
handled  with  the  existing  inadequate  facilities.  But  the  work  of 
enlargement  itself  was  dependent  on  securing  the  wherewithal  to 
defray  the  cost.  Accordingly,  at  the  same  time  that  the  decree 
was  issued,  the  government  introduced  a  bill  into  Parliament 
calling  for  a  special  appropriation  in  order  to  enable  the  telegraph 
administration  to  make  the  most  urgent  improvements  out  of  its 
own  resources.  This  deviation  from  the  policy  of  local  initiative 
did  not  commend  itself  to  the  leaders  of  financial  opinion  in  Par- 
liament, and  the  bill  was  withdrawn.2  The  telegraph  administra- 
tion was  once  more  left  to  its  own  devices  to  find  the  means  for 
improving  its  service.  The  result  was  that  for  the  time  being  the 
service  was  not  improved. 

At  the  reconstruction  of  the  Waldeck-Rousseau  ministry  after 
the  death  of  its  chief  in  1902,  Millerand  lost  his  portfolio.  Yet  his 
three  years  at  the  head  of  the  department  which  was  charged  with 
the  conduct  of  the  telephone  service  had  not  been  wholly  with- 
out effect.  If  he  had  not  accomplished  great  positive  results  by 
his  own  efforts,  he  had  at  least  pointed  out  the  path  in  which  his 

1  D6cret  du  7  mai,  1901.    Journal  OJficiel  du  8  mai,  igoi. 
*  Lacombrade,  p.  290. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  299 

successors  must  tread  if  they  would  establish  the  telephone  under- 
taking on  a  businesslike  basis.  He  had  officially  declared  that  the 
stage  had  been  reached  in  the  development  of  the  telephone  busi- 
ness which  was  anticipated  by  the  commission  on  the  budget  in 
its  report  of  1894.  The  time  had  already  come  when  the  govern- 
ment should  dispense  with  private  and  local  aid  in  financing  its 
telephone  undertaking.  There  was  no  longer  any  excuse  for  failure 
to  recognize  that  only  the  copiour  investment  of  capital  by  the 
central  government  itself  could  save  the  country  from  a  telephone 
crisis,  a  crisis  not  of  over-  but  of  under-production. 

In  another  branch  of  the  work  of  his  department,  Millerand  was 
forced  to  content  himself  with  rendering  a  similar  service.  In  the 
period  before  the  invention  of  the  telephone  the  French  telegraph 
administration  had  made  no  more  pretense  of  incurring  financial 
risks  in  extending  the  service  than  they  had  since  that  event.1 
Municipalities  desiring  the  installation  of  telegraph  facilities  were 
required,  according  to  the  importance  of  the  place,  to  contribute 
50  or  100  francs  per  kilometer  of  new  line,  or  25  or  50  francs  pel 
kilometer  of  wire  strung  on  old  poles,  and,  if  no  post  office  was  on 
hand  to  serve  also  as  telegraph  office,  250  or  300  francs  towards 
the  cost  of  establishing  that  office.  The  local  authorities  were  re- 
quired also  to  furnish  the  office,  to  make  good  any  deficiencies  if 
opera  ting  expenses  should  not  be  covered  by  receipts,  and  finally  to 
pay  the  cost  of  delivering  messages.  These  contributions  amounted 
on  the  average  to  more  than  one  third  of  the  original  cost  of  con- 
struction and  guaranteed  the  state  against  loss  on  operation. 
These  conditions  tended  to  discourage  communes  from  applying 
for  the  establishment  of  telegraph  offices,  not  so  much  on  account 
of  the  contribution  towards  the  first  cost  of  construction,  as  on 
account  of  the  dread  that  they  might  be  called  on  indefinitely  to 
meet  deficiencies  in  operation.  By  shifting  so  much  of  the  risk  of 
their  undertaking  to  the  shoulders  of  their  local  authorities,  the 
public  telegraph  authorities  may  have  increased  their  own  profits, 
but  only  at  the  cost  of  the  widest  utility  of  their  service. 

These  conditions  for  the  establishment  of  telegraph  stations 
remained  in  force  even  after  the  introduction  of  the  telephone. 

1  Millerand,  p.  2995. 


300  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Rural  villages  were  at  liberty  to  substitute  the  telephone  for  the 
telegraph  in  order  to  cut  down  operating  expenses,  as  was  done 
in  Germany  and  Switzerland,  but  this  substitution  was  their  pri- 
vate concern,  not  that  of  the  telegraph  administration.  The  latter 
had  destroyed  its  interest  in  promoting  such  a  substitution  by 
declining  to  assume  the  risk  of  extensions  into  the  rural  districts. 
Hence,  it  was  not  prompt  to  bring  the  alternative  mode  of  estab- 
lishing connections  with  the  general  telegraph  system  to  the  notice 
of  the  rural  authorities.  In  fact,  it  was  not  until  1896  that  the 
telegraph  administration  made  any  special  effort  to  encourage  the 
use  of  the  telephone  in  rural  offices  in  place  of  the  telegraph.1 
The  failure  of  the  telegraph  administration  to  act  sooner  simply 
prevented  rural  authorities  for  almost  two  decades  from  utilizing 
the  more  economical  apparatus. 

In  1900  Millerand  declared  that  the  conditions  for  the  estab- 
lishment of  rural  offices  were  impeding  the  desirable  development 
of  that  branch  of  the  service.  At  that  time  there  were  still  23,800 
communes  without  connection  with  the  general  telegraph  system 
of  the  Republic,  of  which  3400  possessed  more  than  1000  inhabi- 
tants. In  order  to  promote  the  further  extension  of  the  rural  tele- 
graph service,  Millerand  proposed  that  the  local  authorities  should 
be  relieved  of  the  obligation  to  cover  deficits  in  the  operating  ex- 
penses. The  payment  of  distributors  of  telegrams  ought  also  to 
be  assumed  by  the  central  government;  but  this,  he  reluctantly 
admitted,  would  overburden  the  postal  and  telegraph  finances  in 
their  existing  state  and  for  the  moment  could  not  be  recommended. 
However,  the  other  modification  in  the  terms  for  establishing 
rural  offices  would  relieve  840  local  authorities,  who  were  then 
compensating  the  telegraph  administration  for  deficiencies  in  the 
local  receipts,  of  an  average  annual  charge  of  225  francs  each. 
This  modification  would  also  encourage  other  local  authorities  to 
apply  for  offices  and  thus  bring  about  a  considerable  increase 
in  the  total  number  of  rural  offices.  He  recommended  increase  of 
the  appropriation  for  the  telegraph  service  to  make  possible  this 
change  in  the  rural  development  policy.  But  this  was  not  done.2 

1  Ministerial  circular  of  Feb.  u,  1896.    Journal  Officiel,  Feb.  12,  1896. 

2  Docs,  parl.,  Ch.  des  de"p.,  1906,  Annexe  no.  3046,  p.  140. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  301 

For  two  years  after  the  publication  of  Millerand's  open  letter 
to  the  President  of  the  Republic,  the  telegraph  administration  was 
left  to  its  own  financial  devices.  So  far  as  the  Parliament  or  the 
responsible  ministry  was  concerned,  the  policy  of  local  initiative 
was  still  in  force.  When  the  telegraph  administration  realized  that 
it  could  not  hope  to  obtain  funds  from  Parliament  in  the  im- 
mediate future,  it  had  recourse  to  the  same  expedient  that  had 
been  previously  adopted  on  the  occasion  of  the  purchase  of- the 
plant  of  the  Societe  generate  des  telephones  in  1889.  A  sum  of 
10,000,000  francs  was  borrowed  from  the  Caisse  des  depots  et  con- 
signations to  be  repaid  in  five  annual  installments.1  This  make- 
shift, however,  could  not  even  enable  the  administration  to  keep 
pace  with  the  current  increase  of  traffic.  It  was  absolutely  no 
compensation  for  the  lack  of  adequate  capital  in  the  past. 

Finally  the  danger  of  further  persistence  in  this  financial  policy 
was  recognized  by  the  financial  authorities  themselves.  Since  it 
was  their  desire  for  revenue  from  the  postal  and  telegraph  under- 
taking that  had  kept  down  the  annual  appropriations,  as  soon  as 
they  were  convinced  that  a  freer  use  of  capital  would  bring  in 
larger  profits  they  were  ready  to  adopt  a  more  liberal  policy.  In 
the  session  of  1903  one  of  the  socialist  deputies  remarked: 2  "The 
treasury  is  entitled  without  doubt  to  make  profits  out  of  the  postal 
service,  but  a  portion  should  be  re-invested  in  the  business.  Other- 
wise large  profits  will  be  realized  in  the  present  at  the  expense  of 
the  future.  If  the  business  continues  to  be  conducted  as  hitherto 
it  will  not  be  long  before  the  service  will  be  incapable  of  meeting 
the  demands  that  will  be  made  upon  it.  ...  There  will  be  a  crisis. 
The  chambers  of  commerce  will  complain,  and  you  will  have  to 
spend  thirty  or  fifty  millions  all  at  once,  and  hence  wastefully." 
This  conviction  -chat  not  only  the  good  of  the  service,  but  also  the 
profit  of  the  treasury,  required  a  change  of  policy  was  at  last  ac- 
cepted by  the  financial  powers  of  the  day. 

1  Lacombrade,  p.  22a.  This  Caisse  was  established  in  1816  in  order  to  provide  a 
place  of  absolute  security  for  the  deposit  of  private  property.  The  total  deposits  at 
the  end  of  1902  were  over  7,000  million  francs  in  value.  They  are  placed  under  the 
public  faith.  Cf.  Block:  Dictionnaire  de  I  'administration  franqaise,  5th  edit.,  1905, 
vol.  i,  pp.  445-467. 

1  D6bats  parl.,  Ch.  des  de"p.,  Nov.  26,  1903.    Speech  of  Marcel  Sembat. 


302  PUBLIC  OWNERSHIP  OF  TELEPHONES 

A  special  law  was  enacted  November  23,  1903,  appropriating 
the  needful  funds  for  the  construction  of  three  multiple  switch- 
boards at  Paris  and  of  one  at  Lille,  and  for  the  extension  of  the  ex- 
change at  Lyons.  Two  of  the  switchboards  at  Paris  and  that  at 
Lille  were  to  be  ready  at  the  end  of  1905  and  the  rest  in  1906. 
Another  special  law  enacted  on  July  19,  1904,  authorized  the  tele- 
graph administration  to  participate  to  the  extent  of  not  more 
than  6, 000,000  francs  in  the  construction  of  long-distance  lines  of 
general  interest. 

Unfortunately  the  relief  was  too  late.  Before  the  new  works 
could  be  completed  the  crisis  came.1  In  the  summer  of  1905  the 
V  inadequacy  of  the  telephone  facilities  to  handle  the  traffic  became 
intolerable.  The  main  long-distance  lines,  even  if  in  good  working 
order,  would  have  been  overcrowded.  In  fact,  their  technical  state 
was  so  bad  that  interruptions  were  frequent  and  of  long  duration. 
During  the  twelve  months  between  July  i,  1905,  and  June  30, 
1906,  a  special  enumeration  was  made  of  the  delays  that  resulted 
from  interruption  of  the  service.2  Between  Paris  and  Lyons  there 
were  five  lines.  The  total  number  of  interruptions  was  550  and 
their  average  duration  10  hours  and  26  minutes.  Between  Paris 
and  Marseilles  there  was  only  one  line.  The  total  number  of  inter- 
ruptions was  204  and  their  average  duration  14  hours  and  28 
minutes.  In  other  words,  for  a  good  portion  of  the  year  there  was 
no  direct  long-distance  communication  between  the  capital  of 
France  and  its  greatest  seaport. 

The  condition  of  the  local  exchange  business  was  not  so  bad  in 
the  small  localities,  but  in  the  larger  ones  it  was  worse.3  In  Paris, 
where  the  number  of  subscribers  was  greatest  and  their  require- 
ments most  exacting,  the  crisis  was  most  acute.4  In  1905  the 
average  number  of  derangements  of  subscribers'  lines  ranged  from 

1  Rapport  sur  le  budget  des  pastes,  telegraphes  et  telephones  pour  1906,  par  M.  Sembat. 
Docs,  parl.,  Ch.  des  d6p.,  1905,  Annexe  no.  2672;  pp.  1388-1524.    Cited  as  Sembat  I. 

Rapport  suppUmentaire,  par  M.  Sembat,  1906;  Annexe  no.  3046,  pp.  128-171. 
Cited  as  Sembat  II. 

Rapport  sur  le  budget  des  posies,  etc.,  pour  1907,  par  M.  Steeg.  Docs,  parl.,  Ch. 
des  de"p.,  1906;  Annexe  no.  347,  pp.  1849  ff.  Cited  as  Steeg. 

2  Steeg,  pp.  1867-1869.  4  Ibid.,  pp.  1863-1867. 
8  Steeg,  p.  1867. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  303 

19  each  in  the  Gutenberg  exchange  to  10  each  in  one  of  the  less 
important  exchanges.  The  average  time  employed  by  the  ex- 
change operators  in  making  a  local  connection  was  one  minute 
and  fifty  seconds.  This  is  about  five  times  as  long  as  is  required 
in  the  American  metropolitan  exchange  systems.  Poor  as  the  ser- 
vice was,  it  could  not  be  improved  without  making  it  poorer,  for 
the  increase  of  subscribers  which  would  have  resulted  from  any 
improvement  in  the  character  of  the  service  would  have  rendered 
the  system  incapable  of  operating  at  all.  Its  reputation  was  such 
that  many  persons  who  would  have  liked  to  become  subscribers 
were  discouraged  from  making  application,  since  they  knew  the 
administration  would  be  embarrassed  to  accommodate  them.  In- 
deed there  would  soon  be  no  means  of  accommodating  the  in- 
crease of  subscribers,  if  it  continued  even  at  the  existing  rate.  But 
the  service  could  not  be  prevented  from  growing  despite  its  un- 
satisfactory character  and  the  excessive  charges.  By  the  end  of 
1906  the  limit  was  reached.  January  i,  1907,  there  was  no  space 
at  either  of  the  most  important  exchanges  of  Paris  for  the  accom- 
modation of  additional  lines.  At  Gutenberg  there  were  then  17,650 
subscribers'  lines,  although  the  exchange  was  designed  for  only 
16,000.  At  Passy  there  were  9600  lines  connected  with  an  ex- 
change designed  for  8400. 

The  direct  cause  of  the  telephone  crisis  was  twofold.1  First, 
the  plant  was  insufficient  in  quality  and  obsolete  in  design.  Sec- 
ondly, the  operators  were  not  properly  trained  and  were  given  too 
much  to  do.  The  cause  of  the  bad  state  of  the  plant  had  its  roots 
far  back  in  the  past.  The  exchange  system  which  was  taken  over 
from  the  Societe  generate  in  1889  was  in  poor  condition.  In  an- 
ticipation of  the  termination  of  its  concession  the  company  had 
not  tried  to  maintain  its  plant  in  a  good  state  of  efficiency.  The 
telegraph  administration  on  acquiring  the  system  stimulated  a 
considerable  increase  of  traffic  by  reducing  the  flat  rate  from  600 
to  400  francs,  but  it  failed  to  introduce  multiple  switchboards  in 
order  to  handle  this  increased  traffic  as  it  should  have  done.  In- 
stead, it  introduced  a  system  of  making  exchange  connections 
which  required  the  use  of  more  than  one  operator  to  effect  a  single 
1  Sembat,  Steeg;  esp.  latter  at  pages  quoted  above. 


304  PUBLIC  OWNERSHIP  OF  TELEPHONES 

connection  in  case  the  party  wanted  was  beyond  the  reach  of 
the  operator  receiving  the  call.  The  result  was  that  the  poor  ser- 
vice continued.  As  the  number  of  subscribers  increased  the  con- 
dition of  the  service  became  worse.  Plans  for  reform  were  numer- 
ous, but  the  administration  was  unable  to  choose  one  of  them  and 
adhere  to  it.  At  first  the  plan  was  adopted  of  concentrating  all 
the  exchange  offices  under  one  roof,  and  a  great  central  office  at 
Gutenberg  was  constructed.  The  result  of  the  concentration  of 
lines  in  one  building  was  to  increase  the  expenses  of  construction, 
since  the  average  length  of  line  was  increased  and  the  scale  of 
underground  work  was  magnified.  In  1894  this  plan  was  modi- 
fied and  a  number  of  exchanges  were  constructed  on  the  periphery 
of  the  city.  In  1900  a  new  method  of  effecting  local  connections  was 
adopted.  The  work  of  answering  calls  was  assigned  to  one  set  of 
operators  and  that  of  ringing  up  the  party  called  for  to  another 
set,  and  communication  between  the  two  sets  was  established  by 
telephone.  The  method  is  the  same  as  that  employed  in  the  han- 
dling of  long-distance  calls.  As  the  result  of  the  greater  pressure 
under  which  local  business  is  carried  on,  this  method  of  operation 
produced  a  great  deal  of  confusion  in  the  working  of  the  exchange. 
The  best  device  for  overcoming  the  difficulties  of  exchange  opera- 
tion that  arise  as  the  size  of  an  exchange  system  increases  was 
known,  even  at  the  time  the  Paris  system  was  acquired  by  the 
government,  to  be  the  multiple  switchboard.  Yet  it  was  not  until 
fourteen  years  later  that  an  appropriation  was  made  for  the  in- 
troduction of  that  method  of  operation. 

The  incompetence  of  the  personnel  made  a  bad  matter  worse. 
The  operators  were  not  employed  in  sufficient  numbers  nor  given 
the  special  training  that  is  indispensable  for  the  proper  conduct 
of  the  complex  operations  of  a  large  exchange. 

The  crisis  in  the  telephone  business  was  only  one  aspect  of  a 
general  postal  crisis.1  Throughout  the  French  postal  and  telegraph 

1  Compte  rendu  des  travaux  de  la  Chambre  de  Commerce  de  Paris;  Annie  1906. 
Paris,  1907.  Report  of  the  Commission  on  the  Ways  and  Means  of  Communication, 
pp.  346-350.  The  Chamber  of  Commerce  voted,  Dec.  26,  1906,  that  the  postal  and 
telegraphic  department  be  informed  of  the  damage  that  was  occasioned  to  French 
industry  and  commerce  by  the  lamentable  condition  of  the  postal  and  telephone 
services. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  305 

service  the  plant  had  been  allowed  to  run  down  and  the  personnel 
had  not  been  properly  recruited.  Throughout  the  entire  service 
the  supply  of  facilities,  both  material  and  personal,  had  failed 
to  keep  pace  with  the  growth  of  the  demand.  The  necessity  of  a 
thorough  reorganization  was  plain.  In  the  spring  of  1906  the 
replacement  of  Rouvier  by  Sarrien  at  the  head  of  the  radical 
ministry  afforded  the  opportunity  for  a  reorganization.  The  Pos- 
tal and  Telegraph  Department  was  transferred  from  the  Ministry 
of  Commerce  and  Industry  to  that  of  Public  Works.  The  under- 
secretary in  charge  of  the  department  was  soon  after  succeeded 
by  another  who  possessed  in  larger  measure  the  confidence  of  the 
Chamber.  The  new  administration  decided  that  the  telephone 
service  could  not  be  put  on  a  sound  basis  without  the  more 
vigorous  construction  of  main  long-distance  lines  and  the  recon- 
struction of  the  Paris  exchange  system.  The  construction  of 
new  exchanges  in  the  business  district  and  the  introduction 
of  the  common  battery  system  of  operation  was  declared  to  be 
urgent.  A  special  law  was  enacted  July,  1906,  to  provide  the 
necessary  funds.  The  same  act  also  provided  additional  funds 
for  the  further  construction  of  long-distance  lines. 

During  the  course  of  the  same  year  the  Minister  of  Finance 
granted  the  postal  and  telegraph  authorities  a  special  credit  of 
19,000,000  francs  out  of  the  loan  authorized  in  that  year  on  ac- 
count of  the  Moroccan  embroglio.1  Thus  Sembat's  prophecy  of 
1903,  like  Millerand's  of  1900,  came  true.  The  chambers  of  com- 
merce had  complained,  and  it  had  been  necessary  to  make  large 
appropriations  suddenly.  Extensive  new  works  had  to  be  un- 
dertaken without  sufficient  preliminary  consideration  and  to  be 
finished  before  the  end  of  the  year  when  the  credit  would  lapse. 
If  not  finished,  another  year  might  see  the  special  credits  not 
renewed,  and  the  unfinished  works  would  never  be  completed. 
Such  hurried  work  is  always  extravagant  and  often  careless.  The 
crisis  of  1905-06  promised  to  be  an  expensive  lesson  for  the  coun- 
try which  had  permitted  its  rulers  to  maintain  an  unwise  policy  of 
telephone  finance.  Whether  or  not  the  lesson  would  be  worth  the 
cost  would  depend  on  how  well  those  in  authority  profited  by  it. 

*  Steeg,  p.  1853. 


306  PUBLIC  OWNERSHIP  OF  TELEPHONES 

It  would  seem  that  this  crisis  was  destined  to  mark  the  turning- 
point  towards  a  wiser  policy  in  the  conduct  of  the  French  tele- 
phone business.  When  the  financial  estimates  for  1907  came  up 
for  discussion  in  the  Chamber  the  new  administration  was  com- 
pelled to  reveal  its  plans.1  The  unsatisfactory  condition  of  the 
service,  both  long-distance  and  local,  was  candidly  admitted. 
Measures  were  already  being  taken  to  improve  the  efficiency  of 
the  personnel.  In  other  respects  the  amelioration  of  existing  con- 
ditions was  declared  to  be  a  matter  of  funds  and  rested  in  the  hands 
of  Parliament  itself.  But  Parliament,  as  well  as  the  administra- 
tive authorities,  had  profited  by  the  recent  experience.  The  Li- 
moges plan  of  financing  the  telephone  business  was  not  definitely 
abandoned,  but  was  at  least  assigned  a  more  modest  place  as  a 
source  of  capital  for  fresh  construction. 

Meanwhile  the  commission  on  the  budget  for  1907  had  been 
investigating  the  crisis  independently.  The  nature  of  this  in- 
vestigation can  best  be  gathered  from  the  words  of  the  reporter 
of  the  commission  himself:2  "Your  rapporteur,  wishing  to  learn 
the  public  needs  otherwise  than  through  casual  and  isolated  com- 
plaints, addressed  the  chambers  of  commerce  asking  them  what 
improvements  they  would  like  to  see  introduced  into  the  general 
postal  and  telegraph  service.  It  was  suggested,  however,  that 
proposals  of  reform  would  be  most  useful  which  would  not  require 
an  increase  of  expense."  The  unanimous  reply  from  the  chambers 
of  commerce  was  that  the  government  ought  to  provide  the  capi- 
tal for  the  business  from  which  it  derived  the  profits.  The  cham- 
bers waxed  ironical  at  the  simplicity  of  the  public  financier  who 
should  expect  to  improve  the  service  except  by  spending  money. 
In  their  opinion  the  only  remedy  was  for  the  central  government 
to  take  the  financial  initiative  out  of  the  hands  of  the  local  authori- 
ties. If  the  government  was  unwilling  to  provide  the  money  for 
the  proper  conduct  of  the  telephone  business,  it  should  hand  over 
the  monopoly  to  those  who  would.  Private  enterprise  would 
gladly  accept  the  opportunity  to  invest  capital  with  such  a  good 

1  DSbats  parl.,  Ch.  des  de"p.,  1906,  p.  2854.    Speech  of  Louis  Barthou,  Minister 
of  Public  Works,  Dec.  3,  1906. 
*  Steeg,  p.  1850. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  307 

prospect  of  a  profit.  The  reporter  of  the  commission  concluded 
that  the  crisis  was  profound;  that  so  long  as  the  old  methods  of 
conducting  the  business  were  retained  it  would  be  recurrent;  and 
that  it  could  not  be  permanently  cured  without  a  radical  reform 
of  the  financial  policy  of  the  government. 

The  freedom  with  which  the  government  placed  funds  at  the 
disposal  of  the  telegraph  administration  in  1906  would  seem  to  in- 
dicate that  the  lesson  of  the  crisis  had  been  taken  to  heart.  ^The 
reporter  of  the  commission  on  the  postal  and  telegraph  budget 
for  1908  was  able  to  observe: l  "As  for  the  telephone  one  is 
glad  to  be  able  to  get  an  imperfect  service  after  having  known  an 
epoch  when  no  connection  at  all  was  obtainable."  The  evil  re- 
sults of  over  ten  years  of  starvation,  however,  could  not  be  re- 
paired in  one  year  of  abundance.  In  1907  the  chief  of  the  telephone 
service  confessed  2  that  the  main  long-distance  lines  were  still 
overloaded  and  unable  to  handle  the  business  originating  in  the 
relatively  better  developed  departmental  toll  lines.  The  personnel 
in  some  localities  was  still  overworked.  The  appropriations  of  the 
year  before  had  not  been  ample  enough.  He  promised  to  ask  for 
more  for  the  coming  year. 

There  was  certainly  every  need  of  more  capital.  After  the  appro- 
priations of  1906,  the  commission  on  the  budget  for  that  year  had 
declared  that  increased  appropriations  were  still  needed  in  order 
to  increase  the  number  of  employees,  train  them  properly,  and 
enlarge  the  fixed  plant.3  That  of  the  following  year  declared  that, 
in  addition  to  the  further  construction  of  long-distance  lines  and 
the  reorganization  of  the  exchange  system  at  Paris,  the  exchange 
systems  in  the  departments  required  the  introduction  of  the  fol- 
lowing improvements : 4 

(1)  metallic  circuits  wherever  single  wires  were  then  in  use; 

(2)  more  modern  subscribers'  instruments; 

(3)  the  common-battery  method  of  exchange  operation; 

(4)  multiple  switchboards  in  all  the  larger  exchange  systems; 

1  Docs,  parl.,  Ch.  des  de*p.,  1907;  Annexe  no.  1247,  pp.  1906-1988.  Rapport  sur 
le  budget  des  pastes,  etc.,  pour  1908,  par  M.  Noulens,  p.  1907. 

1  D6bats  parl.,  Ch.  des  dep.,  1907,  p.  2396.   Speech  of  M.  Simyan,  Nov.  21, 1907. 
8  Sembat  II,  p.  141.  *  Steeg,  p.  1867. 


308  PUBLIC  OWNERSHIP  OF  TELEPHONES 

(5)  the  prolongation  of  night  service;  and 

(6)  the  installation  of  a  greater  number  of  public  call  offices. 

These  were  changes  which  there  was  little  prospect  of  bringing 
about  on  the  scale  which  alone  could  enable  the  service  to  keep 
pace  with  the  changing  needs  of  its  patrons,  so  long  as  the  supply 
of  capital  was  dependent  on  supplementary  contributions  from 
those  who  had  borne  the  expense  of  initial  construction.  If  ever 
a  policy,  mistakenly  pursued  long  after  its  day  of  usefulness  was 
past,  failed  to  accomplish  the  purposes  for  which  it  was  adopted, 
it  was  the  French  government's  policy  of  raising  the  capital  for 
carrying  on  its  telephone  business  from  its  customers.1 

The  deplorable  state  into  which  the  French  telephone  indus- 
try had  fallen  cannot  be  ascribed,  however,  solely  to  the  unfortu- 
nate financial  policy  of  the  government.  There  was  no  question 
of  the  incompetence  of  the  officials  to  whom  was  intrusted  the 
actual  administration  of  the  telephone  undertaking.2  The  vacil- 
lating policy  with  regard  to  the  construction  of  the  exchange  sys- 
tem at  Paris,  especially  the  long  delay  in  deciding  to  introduce 
multiple  switchboards  and  the  failure  to  make  more  determined  de- 
mands for  increased  appropriations,  reveal  the  bad  management 
and  lack  of  enterprise  of  the  telegraph  authorities.  Their  business 
incapacity  was  further  demonstrated  by  their  inability  to  make 
the  most  of  the  scanty  funds  that  were  placed  at  their  disposal. 
In  1904  an  appropriation  was  made  in  order  to  purchase  a  quan- 
tity of  electrical  apparatus  which  the  administration  intended  to 
use  in  order  to  detect  more  promptly  the  exact  location  of  breaks 
in  the  long  distance  lines.  The  instruments  were  already  in  use  in 
America  and  had  demonstrated  their  worth.  Yet  their  introduc- 

1  Unfortunately  the  French  do  not  seem  to  have  profited  by  their  wretched  ex- 
perience as  they  should  have  done.  The  chambers  of  commerce  were  not  relieved 
of  the  burden  of  financing  fresh  construction  after  the  passage  of  the  crisis.  In  1907, 
as  in  former  years,  we  find  the  chambers  lending  their  credit  to  the  government  with- 
out compensation  in  order  to  secure  the  construction  of  necessary  lines  for  which  the 
telephone  authorities  could  not  or  would  not  secure  the  funds  from  Parliament.  Cf. 
Report  of  M.  Pingualt  on  the  construction  of  a  third  telephone  line  between  Paris 
and  Bordeaux.  Bulletin  de  la  Chambre  de  Commerce  de  Paris,  1907,  p.  883. 

a  Cf.  J.  C.  A.  Prost:  La  Crise  postale  franqaise,  1906,  p.  56.  Rapport  sur  I'exercice 
pour  Vannee  ipop,  par  M.  Chautard.  Reported  in  L' Action,  Nov.  23,  1908. 


DEVELOPMENT  OF  THE  FRENCH  SYSTEM  309 

tion  into  France  did  not  diminish  the  average  length  of  the  in- 
terruptions that  resulted  from  accidental  breaks  in  the  line.1 

In  every  part  of  the  world,  in  the  early  period  of  the  telephone 
industry,  telephone  exchanges  have  been  destroyed  by  fires  caused 
by  powerful  currents  that  accidentally  came  in  contact  with  the 
telephone  lines  and  were  so  conducted  into  the  exchange.  In 
other  places  the  recurrence  of  such  catastrophes  has  been  pre- 
vented by  more  careful  construction  and  especially  by  the  intro- 
duction of  so-called  lightning  arresters.  These  are  fuses  inserted 
in  the  telephone  line  at  the  point  where  it  enters  the  exchange. 
They  are  built  to  carry  the  weak  telephone  current  easily,  but  melt 
at  once  and  so  break  the  circuit  when  a  strong  current  passes 
along  the  line.  The  most  important  exchange  at  Paris,  that  at 
the  Gutenberg  office,  was  not  provided  with  this  device.  One 
night  in  September,  1908,  it  was  almost  completely  destroyed  by 
fire,  caused  presumably  by  the  entrance  of  a  powerful  current 
along  the  telephone  wires,  and  the  telephone  service  of  the  busi- 
ness portions  of  the  metropolis  was  brought  to  a  standstill.  The 
telephone  administration  ascribed  the  cause  of  the  disaster  less 
to  the  lack  of  lightning  arresters  than  to  that  of  adequate  super- 
vision.2 In  either  case,  the  result  bears  eloquent  testimony  to  the 
incapacity  of  the  administration. 

1  Steeg,  p.  1868. 

»  Simyan  in  Ch.  des  de"p.,  Nov.  6,  1908.    Reported  in  Le  Matin,  Nov.  7, 1908. 


CHAPTER  XVII 

THE  RELATIONS  BETWEEN  THE  TELEPHONE  AND  OTHER  BRANCHES 
OF  THE  FRENCH  ELECTRICAL  INDUSTRY 

IN  France  the  development  of  the  relations  between  the  tele- 
phone and  other  branches  of  the  electrical  industry  has  taken  a 
different  turn  from  that  in  Germany  and  Switzerland.  In  the  be- 
ginning, however,  the  attitude  of  the  telegraph  authorities  towards 
power-circuit  installations  was  the  same. 

The  French  decree  of  May  15, 1888,1  required  the  promoters  of 
power-circuit  undertakings  to  give  notice  in  advance  of  their  plans 
to  the  prefect  of  the  department  in  which  the  installation  was  to 
be  made.  Even  plans  for  construction  wholly  within  the  bounds 
of  private  property  were  required  to  be  declared  to  the  police  au- 
thorities, in  case  the  current,  if  direct,  exceeded  500  volts  or,  if 
alternating,  60  volts.  The  inductive  effect  of  alternating  currents 
is  greater  than  that  of  the  direct;  hence  the  discrimination  be- 
tween the  two.  In  general  the  rate  of  change  of  the  force  and  di- 
rection of  a  current  is  more  significant  than  its  quantity,  so  far 
as  concerns  the  phenomena  of  induction.  Power-circuit  conduct- 
ors were  required  to  be  insulated  where  they  crossed  or  passed 
within  six  meters  of  a  telegraph  or  telephone  wire.  The  use  of 
earth  to  complete  the  circuit  was  absolutely  prohibited.  Finally, 
the  supervision  of  such  installations  was  intrusted  to  the  tele- 
graph administration. 

The  French  decree  of  1888,  like  the  early  legislation  in  the  other 
countries,  was  issued  with  regard  especially  to  electric-lighting 
undertakings.  For  several  years  it  sufficed  to  furnish  the  telephone 
system  with  as  much  protection  as  the  telegraph  authorities  de- 
sired without  being  particularly  irksome  to  private  enterprise. 
With  the  growth  of  electric  street-railway  undertakings  further 
action  became  necessary.  It  was  no  longer  possible  to  maintain 
the  absolute  prohibition  against  the  use  of  grounded  circuits 
1  A.  P.  T.,  1894,  PP.  257-260. 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES      311 

without  depriving  a  great  many  localities  of  electric  street  rail- 
ways which  they  would  otherwise  obtain.  On  the  other  hand  the 
existing  regulations  were  unnecessarily  rigorous  toward  the  less 
dangerous  electric-lighting  undertaking.  The  telegraph  authori- 
ties became  convinced  that  they  could  safely  relax  the  conditions 
on  which  the  latter  installations  might  be  made.  At  the  same  time 
they  perceived  that  the  relations  between  the  telephone  and  elec- 
tric street  railway  would  have  to  be  put  on  a  less  arbitrary  basis 
than  that  of  an  administrative  decree. 

The  electrical  industry  in  France  was  conducted  under  entirely 
different  conditions  from  those  that  prevailed  in  Germany  and 
Switzerland.  In  France,  as  in  Germany  and  Switzerland,  the  tele- 
graph authorities  from  the  first  claimed  the  right  to  make  use  of 
the  public  ways  for  telegraphic  purposes  without  obtaining  the 
consent  of  the  local  authorities.  But  contrary  to  the  event  in 
Germany  and  Switzerland,  the  claims  of  the  telegraph  authori- 
ties were  not  for  long  allowed  to  remain  doubtful.  In  1885  the 
exercise  of  the  similar  claim  in  regard  to  the  use  of  private  prop- 
erty for  telegraphic  purposes  led  to  a  conflict  of  jurisdiction 
between  the  civil  and  the  administrative  courts.  The  telegraph 
authorities  concluded  that  the  best  way  to  settle  the  controversy 
was  to  secure  at  once  a  positive  act  of  Parliament  confirming  their 
claims.  At  the  same  time  they  determined  to  take  advantage  of 
the  occasion  to  insure  the  validity  of  their  claim  to  make  use  of  the 
public  ways.  A  bill  with  these  objects  in  view  was  accordingly 
introduced  into  the  Chamber  of  Deputies  on  February  9,  1885, 
and  became  law  without  important  modification  on  the  twenty- 
eighth  of  July.1 

Telegraph  construction  was  declared  to  be  a  "  public  work"  in 
the  French  legal  sense  of  the  term.  Consequently  the  agents  of 
the  telegraph  administration  could  enter  upon  and  make  use  of 
private  property  even  against  the  owner's  wishes  when  armed 
with  a  warrant  issued  by  the  prefect  of  the  department.  The  tele- 
graph authorities  were  expressly  authorized  to  execute  over  or 
under  the  public  ways  all  works  necessary  for  the  construction  and 
maintenance  of  telegraph  lines.  No  compensation  should  be  paid 
1  Vidal:  La  Ttltphonie  au  point  de  vut  juridique.  Paris,  1886. 


312  PUBLIC  OWNERSHIP  OF  TELEPHONES 

to  the  municipal  authorities  with  the  exception  of  a  rental  for 
lines  (Tinteret  prive  which  should  be  established  in  municipal 
sewers.  This  provision  was  inserted  with  regard  to  the  special  case 
of  the  city  of  Paris. 

This  sweeping  grant  of  rights  over  municipal  property  to  the 
telegraph  authorities  without  compensation  seems  extraordinary 
in  comparison  with  the  German  legislation  on  that  subject.  But 
it  will  be  remembered  that  French  municipalities  do  not  stand  in 
the  same  relation  toward  the  central  authorities  as  do  the  German. 
In  France  the  municipalities  possess  less  local  self-government; 
the  central  authorities  enjoy  and  are  in  the  habit  of  exercising 
greater  powers  of  intervention  in  local  affairs.  The  consequence 
of  this  legislation  of  1885  was  that  the  French  municipalities  were 
in  no  such  position  as  were  those  in  Germany  to  play  the  part  of 
protectors  of  the  power-circuit  branch  of  the  electrical  industry. 
Moreover,  even  if  they  had  possessed  the  power  and  the  habit  of 
organized  action  of  the  German  municipalities,  they  did  not  have 
the  same  pretext  for  taking  part  in  the  contest,  because  unlike 
their  Teutonic  neighbors  to  the  northeast,  the  French  munici- 
palities displayed  very  little  taste  for  a  policy  of  municipal  owner- 
ship. 

In  the  few  cities  of  importance  where  the  local  authorities  have 
displayed  an  inclination  to  acquire  and  operate  as  a  municipal 
monopoly  any  local  business,  their  plans  have  been  thwarted  by 
the  disapproval  of  the  central  authorities.  The  prefects,  acting 
under  instructions  from  the  government  at  Paris,  have  almost 
invariably  withheld  their  consent  when  the  local  authorities  have 
requested  them  to  sanction  appropriations  with  a  view  to  the  con- 
duct of  business  operations.  Ordinarily  such  appropriations  are 
disallowed  on  the  ground  that  they  are  contrary  to  the  law  of 
March  17,  1791,  which  established  the  principle  in  France  that  all 
citizens  should  have  liberty  to  engage  in  any  lawful  business  or 
profession.  When  a  municipal  authority  desired  to  engage  in 
a  business  which,  on  account  of  its  nature,  could  not  be  free  to  all, 
such  as  gas  or  electric-lighting  or  street-railway  undertakings  since 
these  undertakings  have  to  make  use  of  the  public  ways,  consent 
was  refused  on  the  ground  that  the  power  was  not  expressly  con- 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES     313 

ferred  by  the  municipal  code  of  March  21,  1884,  from  which 
French  municipal  authorities  derive  all  their  powers.  This  atti- 
tude of  the  administrative  authorities  was  confirmed  by  the  ad- 
ministrative courts  when  cases  were  brought  before  them.1  Hence, 
municipal  ownership  of  public  utilities  does  not  exist  in  France 
on  a  scale  at  all  comparable  to  that  in  Germany.  The  conflict 
between  the  telephone  and  the  power-circuit  branches  of  the 
electrical  industry  in  France  was  one  therefore  in  which  the  local 
authorities  were  destined  to  play  no  part. 

There  was  another  fundamental  difference  between  the  rela- 
tions of  the  power-circuit  to  the  telephone  branch  of  the  electro- 
technical  industry  in  Germany  and  France.  In  the  latter  country 
the  cost  of  construction  of  local  telephone  lines  was  defrayed  by 
the  telephone  subscriber,  not  by  the  administration.  The  admin- 
istration simply  executed  the  orders  of  its  patrons  entirely  at  their 
expense.  If  they  were  dissatisfied  with  the  quality  of  the  service 
rendered  by  the  single- wire  telephone  circuits  with  earth  return, 
they  were  free  to  order  their  exchange  system  constructed  on  the 
basis  of  metallic  circuits.  The  telephone  administration  simply 
raised  its  rates  for  the  more  expensive  mode  of  construction 
and  gave  its  patrons  their  choice.2  If  local  subscribers  whose 
service  was  rendered  on  the  basis  of  grounded  circuits  complained 
of  impaired  audibility  in  consequence  of  the  establishment  of  an 
electric-lighting  or  street-railway  undertaking,  the  administration 
could  reply  that  the  mode  of  construction  was  defective,  since  it 
offered  the  subscriber  no  protection  against  the  mutual  induction 
of  several  telephone  wires  wherever  they  were  thickly  strung  along 
the  same  line.  Thus  the  cost  of  improving  the  local  telephone 

1  The  leading  case  is  that  of  the  funiculaire  de  Belleville,  decided  Feb.  24,  1887. 
Cf.  Block:  Diet,  de  I' administration  fran$aise,  sth  edit.,  1905,  Art.  "Commune," 
vol.  i,  p.  659. 

2  Tarifs  tel.,  vol.  ii,  p.  86.    In  Austria,  where  until  1907  the  method  of  charge  for 
telephone  exchange  service  was  the  same  as  in  France  except  that  the  feature  of 
local  initiative  was  eliminated,  the  administration  reserved  the  right  to  require  any 
subscriber  to  have  his  line  equipped  with  a  metallic  circuit  whenever  it  should  de- 
clare a  metallic  circuit  to  be  necessary  in  order  to  protect  the  telephone  service  from 
the  perturbing  influence  of  a  power-circuit  conductor,  and  raised  the  subscriber's 
initial  contribution  towards  the  cost  of  construction  of  his  line  by  50%  to  cover  the 
additional  expense. 


3H  PUBLIC  OWNERSHIP  OF  TELEPHONES 

service  in  order  to  keep  it  abreast  the  march  of  progress  in  the 
electro-technical  industry  was  shifted  automatically  to  the  con- 
sumers. The  disadvantages  of  this  policy  have  been  pointed  out 
in  a  former  chapter.  It  suffices  here  to  emphasize  the  fact  that  this 
development  policy  removed  one  source  of  conflict  between  the 
telephone  administration  and  promoters  of  power-circuit  electri- 
cal undertakings. 

The  derangement  of  the  working  of  long-distance  lines  by  neigh- 
boring power-circuit  undertakings  in  France  was  even  less  likely 
to  give  rise  to  a  conflict.  Not  only  were  the  long-distance  lines 
constructed  by  local  initiative,  but  also  the  introduction  of  metallic 
circuits  in  order  to  enable  them  to  work  properly  was  recognized 
to  be  indispensable  independently  of  the  influence  of  neighboring 
currents  of  high  potential.  Hence  their  protection  as  well  as  that 
of  the  telegraph  lines  became  a  matter  of  preventing  direct  con- 
tact. This  could  be  done  without  putting  an  excessive  burden  on 
the  promoters  of  power-circuit  undertakings. 

Under  these  circumstances,  the  French  telegraph  authorities 
soon  realized  that  the  obligations  which  had  been  laid  upon  the 
promoters  of  such  undertakings  by  the  decree  of  1888  were  un- 
necessarily stringent.  The  expediency  of  modifying  its  disposi- 
tions was  recognized  at  least  as  early  as  I893.1  In  that  year  the 
administrative  regulations  forbidding  the  use  of  the  earth  to  com- 
plete electrical  circuits  were  relaxed  on  the  national  ways.2  A 
project  for  a  law  which  should  supersede  the  decree  of  1888  and 
establish  a  permanent  basis  for  the  relations  that  should  prevail 
between  the  telephone  and  the  other  branches  of  the  electrical  in- 
dustry, was  introduced  into  the  Chamber  of  Deputies  in  the  spring 
of  i894.3  The  electro- technical  interests  had  become  dissatisfied 
with  the  regulation  of  the  industry  by  ministerial  decree.  The 
matter  was  too  important  for  such  summary  treatment,  but  it 
was  too  complicated  to  be  regulated  in  detail  by  act  of  Parliament. 
Parliament  possessed  neither  the  patience  nor  the  requisite  tech- 

1  A.  P.  T.,  1894,  pp.  257-260.    Die  Herstellung  von  Starkstromanlagen  in  Frank- 
reick.    Decret  du  15  septembre,  1893. 

2  R.  S6e:  Les  Entreprises  de  distribution  d'tnergie  electrique.    Legislation  et  juris- 
prudence, Paris,  1903,  p.  190. 

»  Ibid.,  pp.  94-95- 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES     315 

nical  knowledge  for  the  proper  execution  of  such  a  delicate  task. 
Hence,  in  the  committee  of  the  Chamber  of  Deputies  to  which  the 
telegraph  administration's  bill  was  referred,  the  parties  most  in- 
terested in  the  matter  agreed  to  the  creation  of  a  special  commis- 
sion to  which  the  protection  of  their  respective  interests  should 
be  intrusted.  This  commission  was  intended  to  determine  their 
relations  in  detail  along  lines  broadly  laid  down  by  Parliament 
itself.  With  this  important  modification  the  project  passed  the 
Chamber  without  debate  in  November,  1894,  and  the  Senate  in 
June,  1895. l 

The  law  of  1895  relaxed  the  police  supervision  over  electrical 
installations  erected  solely  on  private  property.  Thereafter  electri- 
cal installations  which  were  not  intended  to  utilize  the  public  ways 
might  be  erected  without  the  previous  notification  of  the  depart- 
mental prefects,  provided  they  did  not  approach  within  ten  meters 
of  a  telegraph  or  telephone  wire.  In  that  case  notice  was  required 
to  be  given  to  the  central  police  authorities  for  the  district  in  ques- 
tion, who,  in  their  turn,  should  notify  the  telegraph  administra- 
tion. The  latter  had  three  months  in  which  to  file  their  acceptance 
of  or  objections  to  the  proposals.  In  the  latter  event,  if  no  agree- 
ment could  be  subsequently  reached  by  private  negotiation  be- 
tween the  telegraph  administration  and  the  promoters,  the  de- 
cision should  be  made  by  the  minister  in  charge  of  the  telegraph 
service  with  the  advice  and  consent  of  an  electrical  commission. 
Alterations  in  undertakings  which  were  already  in  existence  at 
the  date  of  the  enactment  of  the  law  might  be  ordered  within  six 
months  thereafter  in  the  same  way.  Such  alterations  would  then 
have  to  be  completed  within  the  ensuing  twelve  months.  Private 
electrical  installations  which  were  intended  to  pass  over  or  under 
the  public  ways  were  not  to  be  constructed  without  the  consent 

1  Loi  concernant  1'e'tablissement  des  conducteurs  d'energie  electrique  autres  que 
les  conducteurs  t61e"graphiques  et  telephoniques  du  25  juin,  1895;  Journal  Officiel, 
June  26,  1895.  The  text  of  the  law  was  reprinted  without  comment  in  the  next 
succeeding  issues  of  the  leading  French  electrical  journals,  L'£lectricien,  ^Industrie 
flectrique,  and  Le  Journal  de  Vilectricite.  There  is  no  evidence,  either  in  the  technical 
press  or  in  the  parliamentary  debates,  that  the  act  was  preceded  by  any  such  struggle 
as  took  place  in  Germany.  In  fact  it  seems  to  have  been  the  result  of  an  understand- 
ing between  the  two  branches  of  the  industry  brought  about  by  direct  negotiations. 


316  PUBLIC  OWNERSHIP  OF  TELEPHONES 

of  the  prefect  of  the  department  in  which  the  ways  were  situated. 
He  was  authorized  to  determine  what  measures  would  be  neces- 
sary for  the  protection  of  telegraph  and  telephone  wires  on  the 
basis  of  a  special  report  from  a  telegraph  engineer  and  in  accord- 
ance with  the  prescriptions  of  the  Minister  of  Commerce,  Indus- 
try, Posts  and  Telegraphs.  These  prescriptions,  however,  were 
not  applicable  to  power-circuit  installations  promoted  by  public 
authorities  or  by  private  persons  or  associations  acting  under 
special  governmental  authorization. 

The  plans  for  such  installations  were  required  to  be  submitted 
in  advance  to  the  minister  in  charge  of  the  telegraphs  and  tele- 
phones for  his  consideration.  He  was  bound,  however,  to  take 
and  follow  the  advice  of  the  electrical  commission.  This  com- 
mission was  a  permanent  body  appointed  by  the  minister  and 
composed  half  of  public  officials  and  half  of  representatives  of 
the  great  electro-technical  industries.1  The  law  of  1895  expressly 
stipulated,  however,  that  all  projects  must  be  so  carried  out  as  not 
to  disturb  previously  existing  telegraph  or  telephone  lines.  Should 
the  commission  decide  that  the  alteration  or  relocation  of  exist- 
ing telephone  lines  was  necessary,  the  expense  should  be  borne  by 
the  promoters  of  the  disturbing  undertaking. 

Since  the  commission  was  authorized  to  execute  this  provision 
by  drawing  up  the  appropriate  regulations,  it  had  the  power  to 
prevent  the  burdening  of  promoters  of  power-circuit  undertakings 
with  works  for  the  protection  of  telephone  lines  that  were  in  an 
unreasonably  defective  technical  condition.  On  this  point,  there 
could  be  no  serious  antagonism  of  interest  in  the  commission  be- 
tween the  public  officials  and  the  representatives  of  the  electro- 
technical  industry,  so  far  as  exchange  lines  were  concerned.  The 

1  The  present  composition  of  this  commission  is  determined  by  the  law  of  June  15, 
1906.  It  is  composed  of  thirty  members,  fifteen  representatives  of  the  electro- 
technical  industry  appointed  by  the  Minister  of  Public  Works,  Posts  and  Tele- 
graphs, and  fifteen  officials  appointed,  three  each,  by  the  Ministers  of  Public  Works, 
of  the  Interior,  of  War,  and  of  Agriculture,  respectively,  and  three  appointed  by  the 
Minister  of  Public  Works  especially  to  represent  the  postal  and  telegraph  branch 
of  his  department.  (Journal  Officiel,  1906,  p.  5965).  The  technical  conditions  in- 
tended to  protect  the  interests  of  the  public  in  general  and  of  the  telegraph  and 
telephone  service  in  particular,  as  determined  by  this  commission,  are  decreed  by 
the  Minister  of  Public  Works  and  must  be  submitted  to  an  annual  revision. 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES    317 

adoption  of  metallic  circuits  at  the  cost  of  subscribers  would  not 
affect  the  ordinary  exchange  rates.  The  contributions  of  telephone 
subscribers  towards  the  expense  of  construction  were  readjusted 
in  order  that  the  telephone  administration  could  install  metallic 
circuits  when  requested  to  do  so  without  incurring  any  additional 
expense  on  its  own  account.  The  disadvantage  of  this  arrange- 
ment lay  in  the  fact  that  many  subscribers  either  lacking  in  ini- 
tiative, or  impelled  by  motives  of  economy,  would  continue- to 
tolerate  a  defective  service  rather  than  have  a  metallic  circuit  in- 
stalled. The  result  would  be  a  retardation  of  the  transition  to  the 
more  efficient  style  of  construction  and  consequently  an  inferior 
standard  of  service.  Hence,  it  is  no  cause  for  surprise  that  the  com- 
mission on  the  budget  for  1907  included,  among  other  reforms, 
which  it  declared  ought  to  be  made  at  once,  the  completion  of 
the  introduction  of  metallic  circuits  in  the  provincial  cities.1 

The  law  of  1895,  like  all  legislation,  failed  to  give  permanent 
satisfaction  in  every  respect.  With  the  lapse  of  time  its  less  happy 
features  became  more  and  more  perceptible.  In  order  that  pro- 
moters of  electrical  undertakings  might  make  use  of  public  ways 
other  than  the  great  national  highways,  the  consent  of  the  depart- 
mental or  municipal  authorities  was  necessary.  There  was  no 
difficulty  in  coming  to  mutually  acceptable  terms  for  the  use  of 
the  public  ways,  so  long  as  the  promoters  proposed  to  establish 
an  undertaking  with  a  view  to  the  service  of  the  territory  over 
which  the  way-authorities  exercised  their  jurisdiction.  But  when 
the  progress  of  the  electro-technical  industry  brought  the  era  of 
the  great  central  power  stations  from  which  electric  current  is 
distributed  over  a  large  area,  a  new  difficulty  arose.  It  often  be- 
came necessary  for  promoters  of  great  electrical  schemes  to  obtain 
rights  of  way  from  local  authorities  to  whom  they  proposed  to 
render  no  service  whatever,  or  at  least  none  at  all  commensurate 
with  the  magnitude  of  their  undertaking.  The  local  authorities 
thus  found  themselves  in  exclusive  control  of  a  privilege  the  use 
of  which  was  perhaps  indispensable  to  the  electrical  promoters. 
Consequently,  they  were  strongly  tempted  to  "  hold  up"  the  ap- 
plicants for  rights  of  way  until  the  latter  should  consent  to  pay 

1  Steeg,  p.  1867. 


318  PUBLIC  OWNERSHIP  OF  TELEPHONES 

a  round  sum  for  the  privilege  they  desired.  The  yielding  to  this 
temptatioji  by  local  authorities  quickly  brought  about  an  intoler- 
able state  of  affairs,  and  the  central  authorities  were  appealed  to 
for  the  protection  of  the  promoters.1 

The  result  was  the  law  of  June  15,  1906.2  This  law  was  passed 
by  the  deputies  without  debate  under  a  declaration  of  urgency  by 
the  minister  in  charge,  and  like  that  of  1895  seems  to  have  been 
the  product  of  a  preliminary  understanding  between  the  central 
authorities  at  Paris  and  the  representatives  of  the  electro-techni- 
cal industry.  The  details  need  not  be  gone  into  in  this  connection. 
In  the  main,  it  followed  the  lines  of  the  law  of  1895.  Its  prime  pur- 
pose, however,  was  not  to  make  any  alteration  in  the  dispositions 
for  the  protection  of  telephone  lines,  but  to  facilitate  the  granting 
of  concessions  to  promoters  of  electrical  undertakings  on  a  large 
scale,  afford  them  security  of  tenure  and  relief  from  the  exactions 
of  local  authorities,  and,  in  general,  to  strengthen  the  control  of 
the  central  authorities  over  the  establishment  and  exploitation 
of  electro-technical  undertakings.  With  this  object  in  view  the 
Minister  of  Public  Works,  Posts  and  Telegraphs  was  authorized  to 
fix  the  maximum  fees  which  the  local  authorities  might  charge  for 
the  use  of  their  public  ways.  The  latter  were,  moreover,  prohibited 
from  making  any  stipulations  concerning  the  commercial  aspects 
of  the  exploitation  of  an  electrical  undertaking  as  a  condition  to 
the  granting  of  a  right  of  way.  Complete  control  over  the  dispo- 
sitions regulating  the  relations  which  should  prevail  between  the 
promoters  of  such  undertakings  and  the  public  was  retained  in 
the  hands  of  the  central  authorities. 

Regulations  concerning  the  technical  conditions  of  exploitation 
were  to  be  made  as  under  the  law  of  1895  with  the  advice  and  con- 
sent of  a  standing  technical  commission.  The  general  dispositions 
of  the  law  of  1906  for  the  protection  of  telegraph  and  telephone 
lines  are  identical  with  those  of  the  law  of  1895.  Consequently 
the  relations  between  the  power-circuit  and  the  telephone  branches 
of  the  electro-technical  industry  remain  on  the  basis  established 
by  the  earlier  law. 

1  R.  S£e,  op.  cit.j  pp.  11-45. 

2  Loi  sur  les  distributions  d'energie  61ectrique  du  15  juin,  1906. 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES    319 

There  is  no  evidence  that  the  electro-technical  interests  are 
seriously  dissatisfied  with  this  arrangement.  The  French  legisla- 
tion purports  to  give  the  telegraph  service  the  same  protection  as 
was  accorded  the  German  telegraph  service  by  the  German  act 
of  1892.  In  practice  its  effect  is  radically  different  from  that  of 
the  earlier  German  legislation.  Nominally  the  entire  French 
electro-technical  industry  is  made  tributary  to  the  telegraphs 
and  telephones.  In  fact,  it  does  not  feel  its  subjection.  In  default 
of  unexpected  developments  in  the  realm  of  electrical  science,  the 
French  scheme  of  a  bi-partisan  electro-technical  commission  ought 
to  furnish  a  reasonably  satisfactory  mode  of  determining  the  ques- 
tions which  will  fall  within  its  competence. 

The  effect  of  the  French  legislation  on  the  development  of  the 
electrical  industry  cannot  be  measured  statistically  with  exacti- 
tude. The  figures  of  comparative  development  in  the  leading  Eu- 
ropean countries,  however,  are  not  uninstructive.  The  electrical 
street  railways  are  the  electrical  undertakings  most  likely  to  be 
adversely  affected  by  the  measures  taken  by  the  telegraph  authori- 
ties to  protect  the  public  investment  confided  to  their  care.  The 
development  of  electrical  street  railways  at  the  end  of  the  year 
1895  was  as  follows:1 

Number  of  lines.  Length  in  kilometers. 

Country.           Trolley  Other  ,  January  i,  January  i, 

systems,  systems.  1896.  1895- 

Germany                       35  i  36  406  102 

France                            n  5  16  132  41 

United  Kingdom             8  10  18  107  71 

Switzerland                    12  o  12  47  23 

Italy  7  o  7  39  *3 

Austria-Hungary.-  6  3  9  71  33 

Absolutely,  the  greatest  development  was  in  Germany;  relatively 
to  population,  or  to  area,  in  Switzerland.  In  number  of  systems 
the  United  Kingdom  was  superior  to  France,  but  in  length  of  lines 
it  was  inferior  and  was  advancing  less  rapidly. 

In  all  the  countries  the  introduction  of  electricity  as  a  motive 
power  was  retarded  by  the  fact  that  a  great  deal  of  costly  street- 

1  L'Industrie  electrique,  March  10,  1896. 


320  PUBLIC  OWNERSHIP  OF  TELEPHONES 

railway  plant  was  already  in  existence,  operated  by  other  forms 
of  power.  In  1890  the  use  of  animal  power  for  traction  purposes 
was  dominant  on  the  urban  street  railways  of  all  countries,  and 
where  cheap  water  power  for  the  generation  of  electrical  current 
was  not  available,  the  preference  in  1890  was  for  steam  rather  than 
for  electricity,  if  any  mechanical  power  were  to  be  substituted  for 
horses.  This  was  especially  the  case  on  the  suburban  and  local 
rural  lines.  In  the  then  existing  state  of  electro-technical  science, 
the  problem  of  the  transmission  of  power  over  long  distances  was 
a  formidable  one.  Fresh  construction  outside  of  the  cities  took  the 
form  chiefly  of  "feeders"  for  the  ordinary  steam  railways.  These 
feeders  were  intended  to  carry  agricultural  produce  and  other 
commodities  as  well  as  passengers  and,  though  usually  constructed 
on  the  highways,  were  of  an  entirely  different  nature  from  the 
urban  street  railways.  Moreover,  the  traffic  over  these  lines  was 
not  dense,  a  circumstance  which  diminished  the  advantage  of  the 
use  of  electrical  power  instead  of  steam.  In  France  the  total 
length  of  street-railway  lines  in  1890  was  1085  kilometers,  and  in 
1895,  2167  kilometers.1  Thus,  the  length  of  track  in  operation 
doubled  during  that  period,  a  growth  to  be  attributed  almost 
wholly  to  the  construction  of  local  steam  roads  on  the  rural  high- 
ways. 

In  the  cities  the  substitution  of  electric  for  animal  traction  was 
retarded  by  the  dread  of  the  municipal  authorities  lest  the  bare 
trolley  wires  become  sources  of  danger  to  life  and  property  in  the 
streets,  especially  in  case  of  fire.  This  dread  was  not  unreason- 
able, and,  as  Europeans  display  a  far  greater  concern  for  the  pre- 
servation of  human  life  than  do  Americans,  they  were  perfectly 
consistent  in  being  more  reluctant  to  permit  the  erection  in  the 
public  ways  of  uninsulated  wires  charged  with  powerful  electric 
currents.  Hence,  in  Europe,  especially  in  the  largest  cities,  the  use 
of  steam  was  preferred  for  a  time  to  that  of  electricity.  Even  after 
the  introduction  of  electricity  was  seen  to  be  more  economical 
than  that  of  steam,  where  traffic  was  dense  and  stops  frequent,  the 
municipal  authorities  still  were  tempted  to  wait  in  the  hope  that 
other  forms  of  power  transmission  would  be  invented  which  could 

1  Annuaire  statistique  pour  Vann&e  1906,  p.  440. 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES     321 

be  substituted  for  the  trolley,  or  that  the  problem  of  electric  trac- 
tion would  be  solved  by  the  use  of  storage  batteries.1  The  cities 
which  were  already  fairly  well  served  by  animal,  steam,  or  cable 
street  railways  could  afford  to  await  the  results  of  the  experi- 
ence gained  by  experimentation  in  the  smaller  and  less  well  served 
cities.  This  was  true  not  only  in  the  big  cities  of  Europe  —  Lon- 
don, Paris,  and  Berlin  —  but  also  in  the  American  metropolis  — 
New  York.  The  Europeans,  indeed,  could  better  afford  to  use 
caution  than  could  the  Americans,  for  in  the  European  capitals 
the  greater  compactness  of  the  residential  districts,  and  the  more 
extensive  omnibus  and  public-carriage  services,  left  less  need  for 
the  street  railway  than  in  America. 

Thus  there  were  many  considerations  besides  the  desire  of  the 
telegraph  authorities  to  protect  their  undertakings  from  derange- 
ment by  induction  from  neighboring  trolley  wires,  which  tended 
to  restrict  the  early  use  of  electrical  traction  especially  in  that 
form,  on  urban  street  railways  in  Europe.  Ah1  these  considera- 
tions, taken  together,  exercised  a  greater  influence  over  the  de- 
velopment of  electrical  street  railways  in  France  than  in  Germany 
and  Switzerland,  as  is  clearly  shown  by  the  statistics.  But  they 
did  not  exercise  any  more  influence  in  France  than  in  England, 
where  at  that  time  the  telephone  constituted  a  private  monopoly 
in  the  hands  of  a  private  corporation  —  the  National  Telephone 
Company  —  and  where  consequently  the  public  authorities  had 
no  incentive  for  according  them  special  protection.  Indeed,  it 
can  be  shown  that  the  private  telephone  company  was  able  to 
obtain  the  issuance  of  regulations  for  the  protection  of  its  private 
interests  no  less  effective  than  those  decreed  by  any  of  the  tele- 
graph administrations  on  the  Continent.2 

1  In  1895,  according  to  E.  Pilon:  Monopoles  Communaux,  Caen,  1899,  p.  258,  35 
French  cities  possessed  37  street-railway  systems.  Of  these,  16  were  operated  by 
animal  power,  14  by  electricity,  5  by  steam,  and  2  by  compressed  air.  Lyons  pos- 
sessed both  animal  and  steam  traction,  Saint  fitienne  steam  and  electricity.  None 
of  the  cities  of  the  first  rank  possessed  electric  traction.  Paris,  Marseilles,  Bordeaux, 
Toulouse,  Lille,  and  Rheims  were  still  watching  the  results  of  the  experiments  that 
were  being  tried  in  the  smaller  cities. 

5  I  have  discussed  the  telephone  situation  in  Great  Britain  in  two  articles  published 
in  the  Quarterly  Journal  of  Economics,  November,  1906,  and  August,  1907.  Only 
so  much  of  the  British  experience  with  respect  to  the  regulation  of  the  relations 


322  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  British  state  telegraphs  were  protected  by  the  electric 
lighting  acts  of  1882  and  1888.  These  acts  gave  the  Postmaster 
General  power  so  to  regulate  the  conditions  on  which  electrical 
lines  might  be  constructed  in  the  public  ways  as  to  provide  that 
they  should  not  injuriously  affect  the  governmental  telegraph  lines, 
"  or  the  telegraphic  communications  through  any  such  line."  l 
The  same  acts  protect  telegraphic  lines  owned  by  private  per- 
sons, but  not  the  communications  through  them.  Under  this 
legislation  the  National  Telephone  Company,  which  carried  on 
the  telephone  business  of  the  United  Kingdom  under  a  special 
license  from  the  Postmaster  General,  had  no  protection  against 
the  promoters  of  other  electrical  undertakings  which  might  inter- 
fere by  means  of  induction  with  the  proper  working  of  the  tele- 
phones. It  sought  to  safeguard  its  investment,  however,  not  by 
introducing  metallic  circuits  but  by  the  cheaper  method  of  se- 
curing the  insertion  of  a  clause  in  all  special  legislation  sought  by 
the  promoters  of  other  electrical  undertakings,  by  virtue  of  which 
the  latter  were  forbidden  to  construct  their  works  in  such  a  man- 
ner as  to  interfere  with  the  communications  through  the  lines  of 
the  National  Telephone  Company.2  In  this  it  was  almost  uni- 
formly successful,  and  at  last,  encouraged  by  its  success,  it  ven- 
tured to  approach  the  Board  of  Trade  with  a  view  to  the  adoption 
of  a  standard  clause  for  insertion  in  all  future  private  bills  and 
provisional  orders  dealing  with  electric  traction.3 

between  the  telephone  and  the  power-circuit  branch  of  the  electrical  industry  is 
set  forth  here  as  seems  useful  for  the  purpose  of  enabling  the  reader  better  to  judge 
the  policy  pursued  in  France. 

1  Telegraphic  lines  include  telephone  lines  according  to  the  decision  of  the  High 
Court  of  Justice,  Dec.  20,  1880. 

2  The  Electrical  Review,  May  26,  1893:  Editorial,  "Cheap  Traction  or  Defective 
Telephones." 

3  In  Great  Britain  promoters  of  industrial  undertakings  which  require  special 
parliamentary  powers  may  obtain  them  either  by  a  special  act  or  by  a  provisional 
order  issued  by  the  Board  of  Trade  in  accordance  with  a  general  act,  such  as  the 
Tramways  Act,  1870,  or  the  Electric  Lighting  Act,  1888,  and  confirmed  by  Parliament 
in  a  so-called  provisional  orders  confirmation  act,  in  which  a  number  of  such  orders 
are  confirmed  at  once.     In  the  former  case  the  nature  and  extent  of  the  powers  to 
be  granted  are  discussed  and  determined  in  a  special  private  bill  committee  of  Par- 
liament; in  the  latter  by  the  Board  of  Trade,  subject  to  the  confirmation  (rarely 
refused)  of  Parliament.     In  either  case  those  interests  which  will  be  affected  by  the 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES     323 

Against  such  a  proceeding  the  electrical  traction  interests,  al- 
though hitherto  beaten  in  their  contests  with  the  telephone  com- 
pany, stoutly  protested.  Their  cause  was  strengthened  from  a  new 
quarter.  On  October  29,  1891,  the  first  overhead  trolley  road  in 
England  was  opened  at  Leeds.1  This  road  was  built  by  the  muni- 
cipal authorities  themselves,  and  then  leased  for  a  year  in  order  to 
be  equipped  experimentally  with  the  Thomson-Houston  system  of 
electrical  traction.  Hitherto  the  Board  of  Trade,  acting  under  the 
Electric  Lighting  Act,  1888,  had  invariably  refused  to  sanction 
the  erection  of  overhead  trolley  wires,  except  in  special  cases,  and 
even  then  its  sanction  was  made  conditional  on  obtaining  the  con- 
sent of  the  local  authorities.  This  condition  had  always  proved 
an  insuperable  obstacle,  "  because  public  sentiment  was  against 
the  overhead  trolley  on  account  of  the  sad  accidents  which  had 
happened  in  America."  But  when  a  local  authority  itself  applied 
for  permission  to  introduce  the  overhead  trolley,  the  Board  of 
Trade  did  not  deem  itself  justified  in  withholding  its  sanction. 
The  telephone  company  promptly  carried  its  objections  before 
the  courts,  but  as  the  lessee  had  special  parliamentary  authority 
for  his  conduct  by  virtue  of  his  contract  with  the  city  of  Leeds, 
the  court  had  no  difficulty  in  holding  that  he  had  acted  within 
his  rights.2  The  decision  would  also  in  all  probability  have  gone 
the  same  way  on  the  common  law  alone,  and  thus  would  have 
been  in  line  with  the  American  decisions. 

This  decision  precipitated  the  desire  of  the  telephone  company 
to  secure  a  parliamentary  confirmation  of  its  position  towards 
the  promoters  of  power-circuit  undertakings.  The  events  leading 
up  to  the  decision  in  the  Leeds  case  insured  to  the  latter  the  sup- 
proposed  grant  of  powers  are  entitled  to  a  special  hearing  before  the  Parliamentary 
Committee,  or  Board  of  Trade,  at  which  they  may  present  their  objections.  The 
issue  between  the  parties  is  then  decided  much  as  in  an  ordinary  case  at  law.  If,  as 
a  result  of  such  decisions,  similar  powers  under  like  conditions  are  regularly  granted 
to  all  applicants,  the  Board  of  Trade  is  accustomed  to  frame  standard  clauses,  which 
are  always  thereafter  inserted  without  discussion  in  all  private  bills  and  provisional 
orders  dealing  with  the  same  subject.  Cf.  A.  Lawrence  Lowell,  The  Government  of 
England,  1908,  vol.  i,  chapter  20. 

1  Elektrotechnische  Zeitschrift,  1891,  p.  630. 

8  National  Tel.  Co.  v.  Baker,  High  Court  of  Justice,  Chancery  Div.,  Feb.  4, 1893 
(English  Law  Rep.,  Chancery  Div.,  June,  1893,  p.  186). 


324  PUBLIC  OWNERSHIP  OF  TELEPHONES 

port  of  the  municipal  authorities.  The  Board  of  Trade  declined 
the  responsibility,  although  it  had  the  power  of  establishing  a 
standard  clause  as  desired  by  the  telephone  company,  and  turned 
to  Parliament  for  advice.  The  result  was  the  appointment  of  a 
joint  committee  of  the  two  houses  of  Parliament  "  to  consider 
and  report  whether  the  grant  of  subsequent  powers  to  use  elec- 
tricity ought  to  be  qualified  by  any  prohibition  or  restriction  as  to 
earth-return  circuits,  or  by  any  provisions  as  to  leakage,  induction, 
or  similar  matters,  and  if  so  in  what  cases  and  under  what  con- 
ditions." l 

It  is  not  necessary  to  go  into  the  evidence  given  before  the  com- 
mittee. Witnesses  were  heard  and  counsel  argued  on  behalf  of 
the  railway  companies,  the  electric  lighting  companies,  the  elec- 
tric tramway  companies,  the  municipal  authorities,  and  even  the 
gas  and  water  companies.  As  a  result  of  its  deliberations  the  com- 
mittee agreed  on  a  clause  to  be  inserted  thereafter  in  all  private 
bills  and  provisional  orders  which  should  be  sought  by  the  pro- 
moters of  large  electrical  undertakings  for  any  purpose  except 
electric  lighting.  Its  use  in  the  operation  of  electric  street  rail- 
ways was,  of  course,  the  purpose  especially  in  view.  The  object 
of  this  clause  was  to  establish  permanent  relations  between  tele- 
phones and  tramways  on  the  basis  of  the  protection  of  each  by  its 
promoters  at  their  own  expense.  The  effect  was  to  bring  about  the 
same  relations  as  were  established  in  the  United  States  by  virtue 
of  the  decision  of  the  courts.  The  Board  of  Trade  thereafter  in- 
serted the  standard  clause  as  determined  by  the  joint  committee 
in  all  special  legislation  dealing  with  the  matters  in  question,  and 
the  telephone  company  accepted  its  defeat. 

Until  the  middle  of  1893,  however,  the  telephone  company  in 
England  had  impeded  the  introduction  of  electrical  traction  cer- 
tainly as  much  as  did  the  telegraph  administration  in  France.  In 
both  countries  the  use  of  the  earth  for  the  return  of  the  current 
was  prohibited  to  electric  street  railway  promoters  for  a  period 
of  several  years.  In  both  countries  the  prohibition  was  removed; 
in  England  by  the  advice  of  a  joint  committee  of  Parliament,  and 

1  Report  from  the  Joint  Committee  on  Electric  Powers  (Protective  Clauses), 
House  of  Lords,  Sessional  Papers,  1893-94,  vol.  10. 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES     325 

in  France  by  decision  of  the  telegraph  administration  itself,  at 
about  the  same  time.  In  England  the  decision  of  the  committee 
did  not  require  the  sanction  of  an  act  of  Parliament,  nor  in 
France  did  that  of  the  telegraph  administration.  In  the  latter 
country  the  desire  to  establish  the  relations  between  the  different 
branches  of  the  electrical  industry  on  a  more  stable  foundation 
for  the  future  led  to  legislation  in  1895.  In  England  in  that  year 
the  use  of  other  forms  of  power  transmission  than  the  overhead 
trolley  was  relatively  more  extensive  than  in  France,  a  fact 
which,  so  far  as  it  indicates  anything  at  all,  indicates  that  the 
policy  of  the  National  Telephone  Company  had  been  more  ef- 
fective in  retarding  the  growth  of  the  industry  by  requiring  the 
employment  of  a  more  costly  method  of  power  transmission  than 
had  that  of  the  French  telegraph  administration.  But  in  the  face 
of  the  other  influences  that  had  affected  the  situation  the  dif- 
ference is  too  trivial  to  be  of  much  significance. 

It  may  be  objected  that  the  policy  of  the  National  Telephone 
Company  was  only  possible  because  of  mistaken  legislation  in 
regard  to  the  electrical  industry  on  the  part  of  Parliament.  It 
may  be  so;  in  any  case,  the  early  correction  of  that  mistake  was 
greatly  facilitated  by  the  existence  of  the  policy  of  municipal 
ownership  of  electrical  undertakings  in  the  British  cities.  If  the 
practice  of  municipal  ownership  of  public  utilities  obtained  in 
France,  as  it  does  in  Great  Britain,  Germany,  and  Switzerland,  it 
is  unlikely  that  the  relations  between  the  telephone  and  the  other 
branches  of  the  electrical  industry  would  be  considered  perma- 
nently determined,  so  long  as  they  were  dependent  upon  the  de- 
liberations of  a  bi-partisan  commission  in  which  the  representa- 
tives of  both  of  the  parties  are  finally  appointed  by  one  of  them. 
Only  the  unimpeachable  exercise  of  its  right  of  appointment  by 
the  government  prevents  the  system  from  becoming  intolerable.1 

The  early  French  policy  was  the  policy  of  all  the  European 
telegraph  administrations  in  the  earlier  period  of  the  electrical  in- 
dustry. The  methods  employed  to  safeguard  the  public  under- 

1  At  the  risk  of  anticipating  unduly  the  results  of  later  chapters,  convenience  has 
determined  the  inclusion  at  this  point  of  cognate  material  relating  to  several  other 
continental  countries. 


326  PUBLIC  OWNERSHIP  OF  TELEPHONES 

takings  were  more  or  less  rigorous  according  to  the  character  of 
government  in  the  various  countries  and  the  extent  of  their  indus- 
trial development.  In  Italy  and  Hungary,  for  example,  the  atti- 
tude of  the  administrative  authorities  was  expressly  sanctioned 
by  positive  legislation.  The  Hungarian  law  of  August  8,  iSSS,1 
provided  that  electrical  installations  of  all  sorts  should  be  so  erected 
as  not  to  interfere  with  the  operation  of  telephone  systems,  and, 
in  order  to  make  this  requirement  effectual,  that  plans  for  such 
installations  should  be  submitted  in  advance  to  the  minister  of 
public  works  for  his  approval.  His  decision  in  regard  to  the  dis- 
positions that  should  be  made  in  order  to  protect  the  telephone 
should  be  final.  The  Italian  law  of  April  7,  1893,2  to  provide  for 
the  proper  regulation  of  the  telephone  business,  required  that  pro- 
moters of  electrical  undertakings  should  submit  their  project  in 
advance  to  the  approval  of  the  Minister  of  Posts  and  Telegraphs. 
The  concessionnaire  of  a  project  ought  to  take  all  possible  pre- 
cautions at  his  own  expense  to  prevent  the  injury  of  the  telephones 
by  more  powerful  currents.  The  use  of  metallic  circuits  was  pre- 
scribed for  the  power-circuit  undertakings,  and  that  of  the  ground 
in  any  way  for  the  return  circuit  was  prohibited.  Any  damages 
whatsoever  to  the  telephone  should  be  compensated  for  by  the 
concessionnaire  of  the  disturbing  undertaking.  The  minister  was 
authorized  to  decide  what  measures  were  necessary  for  the  protec- 
tion of  the  telephones  and  to  order  the  removal,  or  even  to  annul 
the  concession,  of  any  undertaking  that  threatened  to  exercise  an 
unfavorable  influence  over  the  operations  of  the  telephones. 

The  later  French  policy  with  regard  to  the  relations  between  the 
telephone  and  the  other  branches  of  the  electrical  industry  has 
not  been  without  imitators.  The  Italians  and  Hungarians,  to  be 
sure,  have  maintained  their  original  legislation.  The  Norwegians, 
however,  have  introduced  the  French  scheme  of  a  permanent  elec- 
tro-technical commission  by  their  law  of  November  16,  i8p6.3 
This  law  provides  for  the  appointment  by  the  Crown  of  a  commis- 
sion of  three  members,  of  whom  one  must  not  be  an  official,  to 

1  A.  P.  T.,  1888,  pp.  497-500. 

*  Executed  by  decree  of  June  24,  1892.    A.  P.  T.,  1893,  pp.  16-17. 
8  Zeilschrift  fur  Kleinbahnwesen,  1899,  p.  288. 


RELATIONS  OF  FRENCH  ELECTRICAL  INDUSTRIES    327 

make  all  needful  regulations  to  govern  the  relations  between  the 
various  branches  of  the  industry. 

Some  novel  features  in  the  solution  of  this  problem  are  presented 
by  the  legislation  in  the  Netherlands.1  In  that  country  the  exist- 
ence of  municipal  authorities  in  the  double  capacity-  of  promoters 
of  both  power-circuit  and  telephone  undertakings  has  lent  a  differ- 
ent aspect  to  the  inevitable  encounter  between  the  two  sorts  of  in- 
stallations. In  accordance  with  the  law  of  January  n,  1904,  the 
Minister  of  Navigation  and  Dike  Construction,  Commerce  and 
Industry,  framed  and  issued  the  regulations,  governing  the  two 
branches  of  the  industry.  The  general  basis  of  his  regulations  was 
laid  down  in  the  law  itself,  and  was  much  the  same  as  that  estab- 
lished by  the  German  law  of  1892.  In  some  respects  it  goes  fur- 
ther than  that  law.  The  owners  of  a  telephone  service,  for  ex- 
ample, may  prohibit  absolutely  the  construction  of  a  proposed 
electrical  undertaking  employing  a  power  of  over  500  volts,  in  case 
it  is  not  possible  to  relocate  existing  telephone  lines  which  would  be 
injuriously  affected  by  such  an  installation.  This  provision  would 
appear  to  give  the  municipal  telephone  authorities  a  dangerous 
amount  of  protection  against  electrical  railway  undertakings 
but  for  the  fact  that  its  application  is  considerably  affected  by 
the  ownership  of  these  undertakings  by  the  municipalities  them- 
selves. Thus  the  three  largest  Dutch  cities,  Amsterdam,  Rotter- 
dam, and  the  Hague,  not  only  own  their  telephones  but  also 
own  their  electric  street  railways.  Consequently  they  cannot 
abuse  their  powers  under  the  act  of  1904  without  injuring  them- 
selves. In  other  words,  where  a  little  municipal  ownership  could 
have  been  dangerous,  a  good  deal  is  safe. 

1  A.  P.  T.,  1905,  pp.  700-705:  "Das  neue  Niederlandische  Telegraphen-  und 
Fernsprechgesetz  und  die  dazu  erlassenen  Ausfiihrungsbestimmungen,  betreffend 
den  Schutz  der  Schwachstromanlagen  gegen  die  Starkstromanlagen." 


CHAPTER  XVIII 

THE   RATE-POLICY   OF  THE   FRENCH  TELEPHONE  ADMINISTRATION 

THE  rates  of  the  French  telephone  administration  have  never 
been  the  objects  of  such  battles  as  were  fought  over  the  German 
and  Swiss  rates.  The  French  were  more  fortunate  in  their  begin- 
ning. The  early  rates  of  the  Societe  generate  were  so  high  that 
there  was  no  excuse  for  their  imitation  by  the  public  authorities. 
Moreover  the  system  of  financing  telephone  construction  which 
was  adopted  by  the  French  authorities  threw  into  another  form 
a  considerable  part  of  the  charge,  which,  in  Germany  and  on  the 
system  of  the  Societe  generate,  was  comprised  in  the  ordinary 
flat  rates.  Hence  when  the  French  telephone  administration  first 
established  its  charges  in  medium-sized  cities,  it  fixed  them  on  a 
far  lower  level  than  that  maintained  in  the  larger  cities  where  the 
private  company  was  in  control  of  the  business.  Upon  the  ac- 
quisition of  the  company's  system  by  the  government,  the  flat 
rate  in  Paris  was  cut  to  two  thirds  of  its  former  amount  and  those 
in  the  provincial  cities  reduced  correspondingly.  Yet  even  after 
these  changes  there  was  a  considerable  difference  between  the 
charges  in  large  and  in  small  places.  The  French  telephone  ad- 
ministration quickly  realized  its  original  mistake  in  reducing  the 
rates  as  the  number  of  subscribers  to  an  exchange  system  in- 
creased, and  in  1889  framed  its  schedule  on  the  opposite  prin- 
ciple. Thus  the  governmental  telephone  monopoly  was  launched 
with  a  schedule  of  rates  which  was  tolerably  well  adapted  to  the 
different  conditions  that  prevailed  in  large  and  in  small  exchange 
systems. 

The  French  telephone  authorities  began  in  1889  by  offering  the 
same  variety  of  service  that  was  to  be  found  in  the  neighboring 
countries  at  that  period.1  The  flat  rate  was  fixed  at  400  francs 
in  Paris,  300  francs  in  Lyons,  200  francs  in  the  larger  provincial 
cities  (those  with  more  than  25,000  inhabitants),  and  150  francs 
1  Tarifs  t&L,  vol.  i,  pp.  39-44* 


THE  FRENCH  RATE-POLICY  329 

in  the  others.  Taking  into  account  the  contributions  toward 
cost  of  construction,  these  rates  were  all  much  higher  than  the 
German  and  Swiss  flat  rates.  Supplementary  stations,  that  is,  all 
but  the  first  station  to  be  connected  with  an  exchange  by  the  same 
line,  were  charged  for  at  the  rate  of  160  francs  at  Paris,  and  120 
francs  elsewhere.  If  both  principal  and  supplementary  stations 
were  to  be  used  exclusively  by  the  same  subscriber,  the  rates  were 
reduced  to  50  and  40  francs  respectively.  The  requisite  apparatus 
was  paid  for  separately  when  it  was  installed.  All  subscribers  were 
permitted  to  use  public  call-offices  freely  without  further  charge. 
Non-subscribers  were  required  to  pay  50  centimes  per  talk,  or 
could  secure  the  unlimited  use  of  all  public  call-offices  for  a  year 
for  80  francs  in  Paris,  60  francs  in  Lyons,  and  40  francs  elsewhere. 
Subscribers  could  obtain  the  unlimited  use  of  all  toll  lines  in  a 
group  of  exchange  systems  in  the  same  district  upon  payment 
of  an  addition  of  50  %  to  the  annual  exchange  rate.  If  there  were 
no  exchange  in  a  locality,  a  private  resident  or  the  local  public 
authority  could  become  a  subscriber  to  the  inter-urban  service 
for  50  francs  a  year  and  pay  in  addition  the  ordinary  toll  rates  on 
all  outgoing  talks.  This  was  a  useful  rate  at  that  time,  since  there 
were. many  small  villages  without  an  exchange  system  which  en- 
joyed access  to  a  departmental  toll  system.  The  long-distance 
message  rates  were  50  centimes  per  100  kilometers  or  fraction 
thereof  for  each  period  of  five  minutes. 

No  general  movement  among  telephone  subscribers  or  any  class 
of  them  against  the  principle  of  these  rates  can  be  traced  in  the  pub- 
lished reports  of  Parliament.  During  the  discussion  of  the  annual 
estimates  of  the  postal  and  telegraph  administration  contained 
in  the  budget,  there  was  usually  more  or  less  scattering  criticism 
of  particular  rates,  but  this  criticism  represented  the  particular 
feelings  of  single  individuals  or  localities.  No  concerted  attack 
on  the  rates  was  made  by  any  organized  party.  The  capacity  of  the 
chambers  of  commerce  for  concerted  action  was  greatly  diminished 
by  their  lack  of  a  central  organization.  Disunited,  they  were  in 
no  position  to  make  a  consistent  attack  on  the  rate-policy  of  the 
telephone  administration.  In  practice  the  telephone  authorities 
seem  to  have  relied  for  the  necessary  information  on  which  to 


330  PUBLIC  OWNERSHIP  OF  TELEPHONES 

guide  their  conduct  in  regard  to  rates  upon  the  reports  of  the 
several  chambers  of  commerce  and  the  specific  complaints  of  local 
authorities  or  private  individuals.  The  authorities  have  the  power 
to  fix  the  rates  by  decree,  but  changes  that  can  affect  the  public 
revenue  must  be  submitted  to  Parliament  for  approval  along  with 
the  next  annual  estimates.1  In  practice  changes  are  always  ar- 
ranged by  the  minister  in  charge  of  the  postal  and  telegraph  ser- 
vice in  accord  with  the  minister  of  finance,  and  are  never  permitted 
to  imperil  the  public  revenues.  Hence  Parliament  has  never  as 
yet  interfered  with  the  conduct  of  the  ministers  in  regard  to  rates. 

The  first  changes  were  actually  made  in  i8g5.2  The  unlimited 
free  use  of  public  call-offices  by  subscribers  was  abolished  on  ac- 
count of  the  inconvenience  of  identification.  The  rates  on  supple- 
mentary stations  used  by  others  than  the  proprietor  of  the  prin- 
cipal station  were  reduced  to  the  level  of  those  on  supplementary 
stations  used  solely  by  the  proprietor  of  the  principal  station.  The 
local  message  rate  from  public  call-offices  was  reduced  from  50  to 
25  centimes,  and  the  toll  rate  on  inter-urban  conversations  was 
likewise  cut  in  halves.  At  the  same  time  the  unit  period  of  a  talk 
was  reduced  from  five  to  three  minutes.  The  practice  of  giving 
unlimited  district  connections  at  a  flat  rate  was  abandoned.  This 
last  change  called  forth  the  protestations  of  the  interests  that  were 
adversely  affected,  and  a  few  years  later  the  district  flat  rate  was 
restored.3  The  toll  rate  for  communications  throughout  the  ex- 
tent of  any  one  department  was  fixed  at  40  centimes,  or  25  cen- 
times for  talks  over  not  more  than  25  kilometers  of  lines.  For  inter- 
departmental messages  the  rate  was  fixed  at  25  centimes  per  75 
kilometers  or  fraction  thereof,  with  the  proviso  that  no  charge  for 
a  single  talk  should  be  less  than  40  centimes,  nor  more  than  3  francs 
for  any  distance.  The  night  rates  were  fixed  at  three  fifths  of  the 
day  rates,  or,  in  case  a  contract  was  made  for  the  same  connection 
regularly  at  the  same  hour,  at  two  thirds  of  the  day  rates. 

The  local  exchange  rates  in  the  smaller  places  were  also  modi- 
fied during  this  period.4  The  nature  of  the  change  was  the  intro- 

1  Loi  du  21  mars,  1878,  art.  2. 

2  D6cret  du  30  aout;  Journal  Officiel,  1895,  p.  5405. 

3  Decret  du  29  dec.,  1898;  Journal  Officiel,  1899,  p.  14. 

4  A.  P.  T.x  1901,  pp.  290-326;  Das  Fernsprechwesen  in  Frankreich. 


THE  FRENCH  RATE-POLICY  331 

duction  of  the  message  as  the  basis  of  charge.  The  obstacles  to  the 
employment  of  measured-service  rates  in  France  were  lessened  by 
the  fact  that  the  subscriber  bought  his  own  instrument  and  paid 
for  his  own  line.  Hence  the  chief  difficulty  did  not  lie  in  deter- 
mining the  rate  itself  but  in  recording  the  number  of  messages. 
In  consequence  of  this  difficulty  the  message  rate  for  subscribers' 
service  was  introduced  at  first  (1897)  only  in  cities  with  less  than 
60,000  inhabitants.  Its  reception  by  the  public  was  so  favorable 
that  it  was  soon  extended  to  cities  with  not  more  than  80,000  in- 
habitants. The  effect  was  to  make  the  new  rate  available  in  the 
great  majority  of  the  exchange  areas  of  France,  although  not  at 
that  time  to  a  majority  of  the  telephone  subscribers  in  the  country. 
The  telephone  subscribers  in  the  places  where  the  message  rates 
went  into  effect  were  given  the  option  of  paying  the  old  flat  rate  or 
of  paying  15  centimes  per  local  call.  At  the  same  time  the  public 
call-office  rate  was  reduced  to  the  same  amount.  But  it  was  neces- 
sary to  secure  from  message-rate  subscribers  a  contribution  towards 
the  general  operating  expenses  apart  from  those  which  varied  with 
the  number  of  calls.  Otherwise  they  would  have  been  unduly 
favored  at  the  expense  of  the  flat-rate  subscribers.  Hence  they  were 
charged  in  addition  to  the  fee  per  call  a  fixed  sum  of  100  francs 
the  first  year  their  line  was  in  use.  This  charge  was  successively 
reduced  the  following  years  to  80,  60,  and  40  francs  respectively, 
and  remained  fixed  at  the  latter  amount  for  the  fourth  and  all 
succeeding  years.  Supplementary  stations  attached  to  the  lines 
of  message-rate  subscribers  were  entitled  to  the  same  service  for 
30  francs  a  year. 

The  principle  of  this  measured  service  was  borrowed  from  the 
Swiss,  who  had  established  their  rates  on  that  basis  in  1889  and 
adhered  to  it  at  the  revision  of  1894. l  These  rates  were  very  at- 
tractive to  small  users.  A  subscriber  to  a  direct  line  in  a  place  with 
more  than  25,000  inhabitants  would  find  it  advantageous  to  take 
the  measured  rather  than  the  unlimited  service  so  long  as  he  did 
not  send  more  than  1000  messages  a  year.  After  the  introduction 
of  message  rates  the  increase  of  flat-rate  subscribers,  outside  of 

1  Bundesralliche  Botschaft  zum  Gesetzentwurf  iiber  das  Telephonwesen  ;  Bundesblatt, 
1888,  iv.  Cf.  Part  II,  ch.  xii. 


332  PUBLIC  OWNERSHIP  OF  TELEPHONES 

,  Paris  and  the  other  large  cities  in  which  flat  rates  were  alone  per- 
mitted, was  very  slow.  From  14,227  at  the  end  of  1897,  the  num- 
ber of  such  subscribers  rose  only  to  16,758  at  the  end  of  1902. 
During  the  same  interval  the  number  of  message-rate  subscribers 
increased  from  39 24  to  25,557^  The  demonstration  of  the  utility 
of  measured-service  rates  could  not  be  clearer. 

Another  change  which  was  made  during  this  period  related  to 
the  rates  for  talks  between  large  cities  and  their  suburbs.2  At  first 
telephone  subscribers  in  the  suburbs  within  25  kilometers  of  the 
center  of  the  urban  district  were  accorded  unlimited  service 
throughout  the  entire  urban  and  suburban  area  on  payment  of  the 
flat  rate  in  force  in  the  urban  area,  plus  a  special  fee  of  10  francs 
per  kilometer  of  line  required  to  connect  the  urban  and  suburban 
"  centrals."  The  effect  of  this  arrangement  was  to  make  the  sub- 
urban exchange  rate  higher  than  the  urban.  Those  suburban 
subscribers  who  desired  only  a  local  service  felt  that  this  elevated 
charge  was  exorbitant,  and  demanded  the  establishment  of  a  re- 
duced local  exchange  rate  in  connection  with  a  toll  rate  on  talks 
between  city  and  suburb.  The  telephone  administration  accord- 
ingly abandoned  the  former  and  adopted  the  latter  method  of 
charge  (1895).  These  changes  were  vexatious  to  those  suburban 
subscribers  who  used  the  telephone  chiefly  for  the  purpose  of  com- 
municating with  the  city.  At  last,  in  1897,  in  order  to  reconcile 
the  two  opposed  parties  the  telephone  authorities  adopted  the 
sensible  course  of  offering  suburban  subscribers  their  choice  be- 
tween both  kinds  of  service.  These  suburban  rates  were  of  import- 
ance chiefly  in  the  metropolitan  area  of  which  Paris  is  the  center. 
Elsewhere  the  French  suburban  population  is  of  comparatively 
little  significance. 

The  great  problem  in  connection  with  the  telephone  rates  in 
France  has  not  been  to  secure  their  diversification  in  order  to  bring 
them  into  accord  with  the  divergent  needs  of  different  localities 
or  classes  of  subscribers,  but  to  secure  their  reduction  to  a  reason- 
able level.  When  account  is  taken  of  the  contributions  made  by 
subscribers  to  the  cost  of  construction,  even  the  lowest  rates  adopted 

1  Lacombrade,  p.  294. 

2  A.  P.  T.,  1901,  pp.  290-328;  Das  Fernsprechwesen  in  Frankreich. 


THE  FRENCH  RATE-POLICY  333 

by  the  administration  in  1889  for  the  smallest  class  of  exchange 
were  higher  than  the  single  flat  rate  in  Germany.  The  flat  rates 
in  force  in  the  larger  places  —  in  Lyons  and  especially  in  Paris  — 
were  much  higher.  Their  discrepancy  cannot  be  explained  away 
by  reference  to  any  differences  in  the  general  level  of  prices,  or  in 
any  other  economic  differences  between  the  two  countries,  for  no 
such  differences  exist  on  a  scale  at  all  corresponding  to  the  differ- 
ences in  rates. 

As  early  as  1895  the  excessive  height  of  the  French  rates  was 
allowed  to  be  inferred  by  the  declaration  of  the  telephone  authori- 
ties themselves.  The  minister  in  charge  of  the  telephone  service 
in  that  year,  A.  Lebon,  publicly  stated  that  the  development  of 
the  telephone  service  was  arrested  by  the  elevation  of  the  rates.1 
It  would  be  impossible,  he  continued,  with  the  existing  facilities, 
to  reduce  the  flat  rates,  and  moreover  such  a  reduction  might  dis- 
turb the  budgetary  equilibrium.  Five  years  later  Lebon's  state- 
ment was  confirmed  by  Millerand's  positive  declaration.  The  flat 
rates  in  Paris  and  Lyons,  he  asserted,  should  be  reduced  from  400 
to  300  francs  a  year  and  from  300  to  250  francs  respectively.2  But 
such  a  reduction  was  then  impossible  on  account  of  the  lack  of 
adequate  facilities  for  accommodating  the  increase  of  traffic  that 
would  result.  In  other  words,  as  he  himself  said,  the  existing  ex- 
orbitant rates  acted  as  a  "dike"  against  an  inconveniently  rapid 
increase  of  subscribers  and,  exorbitant  as  they  were,  would  have 
to  be  maintained  for  that  express  purpose  until  more  ample  fa- 
cilities should  be  available. 

Between  the  stupid  financial  policy  of  the  French  government 
and  the  business  incapacity  of  the  telephone  management,  ade- 
quate facilities  were  not  made  available,  and  the  "dike"  was 
maintained.  To  be  sure,  Millerand  accomplished  some  minor 
reforms.3  Among  others,  he  reduced  the  local  message  rate  from 
public  pay  stations  in  Paris  from  20  to  15  centimes,  and  in  the  de- 

1  Rapport  au  President  de  la  Re*publique  francaise  du  30  aotit,  1895;  Journal 
Officicl,  1895,  p.  5405. 

*  Millerand  Rapport,  p.  3000 ;  cf.  ante,  ch.  xi. 

3  A.  P.  T.,  1902:  Reform  des  Fernsprechgebtihrenwesens  in  Frankreich,  pp.  376 
ff.,  404  ff.  These  reforms  were  accomplished  by  the  decree  of  May  7,  1901.  Cf. 
also,  Tarifs  tel.,  vol.  ii,  pp.  182-198. 


334  PUBLIC  OWNERSHIP  OF  TELEPHONES 

partments  from  15  to  10  centimes.  The  contributions  towards  the 
cost  of  construction  of  subscribers'  lines  were  also  reduced,  as  they 
had  come  to  exceed  the  actual  cost  to  the  administration  of  the 
materials  and  labor  employed  in  that  work.  Message-rate  sub- 
scribers thereafter  received  their  instruments  free,  as  well  as  their 
lines  up  to  a  distance  of  one  kilometer  from  the  exchange  office. 
In  places  where  the  message-rate  service  was  not  available,  it  was 
made  permissible  to  rent  special  lines  to  be  used  only  for  long- 
distance service  at  a  flat  rate  of  150  francs  a  year  in  Paris,  125 
francs  in  Lyons,  and  50  francs  elsewhere.  This  service  met  the 
needs  of  those  who  did  not  care  for  a  local  exchange  service  yet 
made  considerable  use  of  the  long-distance  lines.  Flat-rate  sub- 
scriptions were  furthermore  admitted  for  shorter  periods  than  a 
year  and  made  payable  quarterly,  or  even  monthly.  But  the  main 
reform,  promised  for  the  end  of  1902,  was  postponed. 

The  facilities  which  Millerand  declared  should  be  ready  by  the 
end  of  that  year  were  not  ready.  Nor  were  they  ready  the  next 
year,  nor  the  next.  Meanwhile  the  "dike"  was  still  maintained. 
Then  the  crisis  came.  The  commission  on  the  budget  for  1906 
pointed  out  that  during  the  years  that  had  elapsed  since  the  pub- 
lication of  Millerand's  report  the  excess  of  telephone  receipts  over 
the  official  estimates  incorporated  by  the  Minister  of  Finance  in 
his  annual  budgets  had  alone  amounted  to  more  than  enough  to 
have  so  reconstructed  the  Paris  telephone  system  that  the  reduc- 
tion of  the  flat  rate  could  have  been  made.1  But  the  public  fisc 
absorbed  all  the  excess,  the  unexpected  as  well  as  that  on  which  it 
had  calculated.  Still  the  Paris  service  remained  unimproved. 
The  commission  on  the  budget  for  1907  recognized  that  the  flat 
rate  could  not  be  reduced  for  an  indefinite  period,  and  suggested 
that  it  would  be  better,  perhaps,  not  to  reduce  it  at  all,  but  to  in- 
troduce message  rates  instead.2  This  proposal  had  already  been 
brought  forward  in  the  Chamber  of  Deputies  by  its  promoters,  but 
awakened  no  general  response  from  the  deputies  as  a  whole.3  The 
telephone  administration  asserted  that  the  introduction  of  mes- 

1  Sembat  I,  Introduction,  pp.  1388-1389.  2  Steeg,  p.  1867. 

3  Debats  parl.,  Ch.  des  d£p.;  speeches  of  M.  Chastenet,  March  17,  Dec.  3, 1906, 
Journal  Officiel,  1906,  pp.  1394,  2395. 


THE  FRENCH  RATE-POLICY  335 

sage  rates  had  been  under  consideration,  but  the  changes  could 
not  be  put  into  effect  in  the  large  cities  until  the  invention  of  a  re- 
liable means  of  counting  calls.1 

A  year  later,  on  a  similar  occasion,  the  under-secretary  in  charge 
of  the  postal  and  telegraph  department  declared  that  the  flat  rate 
was  unquestionably  excessive,  and  that  message  rates  should  be 
instituted.  The  reform  of  the  rates  could  not  be  made,  however, 
until  eight  new  exchange  offices  were  constructed  and  the  change 
to  the  common-battery  method  of  operation  was  completed.2 
Finally,  after  another  year,  the  destruction  of  the  main  Paris  ex- 
change by  fire  gave  the  reduction  of  the  local  rates  to  a  reason- 
able basis  another  setback.  Under-secretary  Simyan  then  stated 
that  plans  were  under  consideration  for  the  installation  of  new  ap- 
paratus which  would  make  possible  the  introduction  of  reason- 
able rates  on  the  basis  of  a  measured  service.3  "  But  the  reduction 
of  the  flat  rate  before  the  completion  of  the  new  exchange  offices 
would  stimulate  an  increase  of  patronage,  to  which  we  should  not 
be  able  to  give  satisfaction."  The  "  dike"  still  held  fast. 

Between  incompetent  mana'gement  and  a  mistaken  financial 
policy,  telephone  subscribers  have  had  ample  cause  for  dissatis- 
faction with  the  governmental  service.  It  is,  moreover,  at  least 
questionable  whether  the  government  itself  has  not  also  had  cause 
to  be  dissatisfied  with  its  conduct  of  affairs.  Regarded  simply  as 
a  source  of  public  revenue,  it  is  not  at  all  impossible  that  the  net 
receipts  of  the  public  treasury  from  the  telephone  business  would 
have  been  greater  had  it  been  content  with  the  10  %  of  the  gross 
receipts  which  it  formerly  received  from  the  Societe  generate  des 
telephones.  By  converting  the  telephone  service  into  a  fiscal 
monopoly  the  government  secured  for  itself  the  entire  amount 
of  the  profits  of  operation,  but  at  the  same  time  its  conduct  of 
affairs  unquestionably  retarded  to  a  very  considerable  extent  the 
normal  development  of  the  business. 

1  Steeg,  p.  1867. 

*  D6bats  parl.,  Ch.  des  d6p.,  M.  Simyan  in  reply  to  a  question,  Nov.  21,  1007; 
Journal  Officiel,  1907,  p.  2395.  Cf.  Bulletin  de  la  Chambre  de  Commerce  de  Paris, 
1907,  p.  883. 

1  Ibid.,  Nov.  6,  1908.  Reported  in  Le  Matin,  Nov.  7,  1908.  Cf.  Rapport  sur 
I'exercice  pour  l'anne"e  1909  par  M.  Chautard.  Reported  in  V 'Action,  Nov.  23, 1908. 


336  PUBLIC  OWNERSHIP  OF  TELEPHONES 

During  recent  years,  up  to  the  outbreak  of  the  crisis,  the  oper- 
ating ratio  of  the  entire  postal  and  telegraph  undertaking  has 
fluctuated  around  75  %.1  In  other  words,  almost  one  quarter  of 
the  gross  receipts  have  been  covered  into  the  public  treasury  as 
surpluses  over  and  above  current  operating  expenditures  and  have 
been  available  for  use  in  relief  of  other  forms  of  taxation.  It  is 
impossible  to  ascertain  the  share  of  the  telephone  service  alone  in 
the  results  of  the  whole  undertaking,  for  the  expenditures  are  not 
accounted  for  separately  under  each  branch  of  the  service.  Hence 
no  separate  statement  for  the  telephone  business  is  published,  and 
under  the  existing  mode  of  accounting  none  can  be  published. 
But  the  gross  receipts  from  telephone  operation  are  known.  These 
receipts  in  the  year  1906,  including  therein  the  advances  of  local 
authorities  on  account  of  fresh  construction,  were  materially  less 
than  those  from  the  operation  of  the  telegraphs.  In  the  same  year 
in  Germany  the  receipts  from  the  telephones  were  more  than  two 
and  one  half  times  as  great  as  those  from  the  telegraphs.2  So 
far  as  the  ratio  between  telegraph  and  telephone  receipts  in  Ger- 
many is  an  indication  of  that  which'  should  have  existed  in  France, 
the  inference  is  that  either  the  French  telephone  business  has  been 
stunted  in  its  development  or  that  the  telegraph  business  has  been 
exceptionally  favored.  Doubtless  the  constant  overcrowding  of 
the  long-distance  telephone  service  caused  a  portion  of  the  long- 
distance traffic  to  be  sent  over  the  telegraph  wires  which  would 
preferably  have  been  sent  by  telephone;  but  there  is  also  good  rea- 
son for  supposing  that  a  certain  amount  of  traffic  never  came  into 
existence  at  all  which  would  have  been  called  forth  by  an  attrac- 
tive long-distance  service.  Hence,  so  far  as  that  branch  of  the  tele- 
phone business  is  concerned,  both  inferences  appear  well  founded. 

The  effect  of  the  business  methods  pursued  by  the  French 
government  on  the  profits  of  the  local  business  is  more  difficult  to 
calculate.  The  total  receipts  from  the  telephone  undertaking,  of 
which  by  far  the  greater  part  came  from  the  exchange  business, 
after  the  deduction  of  the  sums  repaid  on  advances  by  local  author- 

1  Sembat  II,  p.  129. 

2  Bureau  international  des  administrations  te"16graphiques.  Statistiqtte  ghit- 
rale  .  .  .  pour  Vannie  1906. 


THE  FRENCH  RATE-POLICY  337 

ities,  amounted  to  127,360,321  francs  for  the  period  1889  to 
1901. l  This  sum,  apparently,  is  slightly  in  excess  of  the  sum  of 
the  original  loan  from  the  Caisse  des  depots  et  des  consignations, 
plus  the  sums  voted  by  Parliament  in  the  annual  budgets.  But 
accuracy  is  out  of  the  question,  since  neither  receipts  nor  ex- 
penditures are  separately  accounted  for.  During  the  same  period 
the  government  had  acquired  for  nothing  a  plant  originally  equal 
in  value  to  the  amount  of  the  advances  by  local  authorities  that 
had  been  repaid  up  to  the  end  of  1901.  This  amount  was  more 
than  10  %  of  the  gross  receipts  from  operation,  but  meanwhile 
the  plant  so  received  had  depreciated  more  or  less.  In  the  absence 
of  proper  accounts  its  real  value  in  1901  is  a  matter  of  guesswork. 
It  may  have  been  10  %  of  the  gross  receipts  from  operation.  In 
that  case  the  French  government  had  lost  nothing  financially  by 
its  change  of  policy  in  1889,  provided  that  the  exchange  business 
had  grown  as  rapidly  under  governmental  ownership  as  it  would 
have  done  if  it  had  remained  under  private  management.  In  Paris, 
and  to  a  lesser  extent  in  the  larger  provincial  cities,  it  had  not  done 
this.  In  the  smaller  cities  the  ill  effects  of  administrative  ineffi- 
ciency were  much  less,  and  the  advantages  of  the  policy  of  1889 
over  that  of  1879  were  much  greater,  than  in  the  metropolis.  But 
even 'so,  as  late  as  1902  almost  half  of  the  whole  number  of  tele- 
phones in  use  in  France  were  to  be  found  in  the  two  cities  of 
Paris  and  Lyons.  What  the  proportion  might  have  been  under 
a  more  enlightened  conduct  of  affairs  it  is  impossible  even  to  guess. 
In  short,  the  fact  remains  that  bad  management  had  done  its 
worst  at  the  very  point  where  mistakes  were  most  costly.  Hence 
the  surplus  of  receipts  over  expenditures  in  the  telephone  service 
may  easily  have  been  actually  less  than  the  sum  the  French  fisc 
might  have  received  by  farming  the  business  to  a  private  operating 
company. 

In  any  event  the  surplus  actually  received  is  more  apparent 
than  real.  For  no  account  is  taken  of  the  interest  and  amortiza- 
tion of  the  capital  invested  in  postal  and  telegraphic  plant.  More- 
over, no  account  is  taken  of  the  services  rendered  the  postal  ad- 
ministration by  the  railroads  nominally  without  charge  or  at  less 
1  Cf.  the  computations  of  Lacombrade,  appendix. 


338  PUBLIC  OWNERSHIP  OF  TELEPHONES 

than  cost.  Under  the  arrangements  existing  in  France  between 
the  government  and  the  railroads  these  services  are  in  reality  paid 
for  in  other  ways,  and  should  be  charged  against  the  postal  ad- 
ministration. On  the  other  hand,  the  post  office  carries  a  great 
deal  of  official  correspondence  for  other  departments  and  trans- 
mits official  telegrams  over  its  telegraph  wires  without  charge. 
In  short,  the  true  state  of  the  French  postal  and  telegraph  finances 
is  absolutely  unknown.  That  under  the  existing  schedule  of  rates 
the  telephone  branch  of  the  undertaking  is  operated  at  a  profit 
is,  however,  beyond  question.  But  that  this  profit  is  as  great  as 
that  which  could  have  been  realized  by  a  more  enlightened  policy 
in  the  conduct  of  the  business  is  open  to  grave  doubts. 


CHAPTER  XIX 

THE   LABOR  SITUATION  IN  THE  FRENCH  TELEPHONE   SERVICE 

IN  France,  as  in  Germany,  the  most  significant  facts  in  recent 
economic  history  are  an  increasing  concentration  of  capital  and  a 
corresponding  agglomeration  of  labor  and  strengthening  of  class 
consciousness  among  wage-earners.  The  latter  phenomenon,  the 
one  most  directly  connected  with  the  relations  between  public 
employees  and  the  state,  has,  however,  appeared  in  somewhat 
different  form  in  France  and  in  Germany.  Neither  the  political 
nor  the  economic  expression  of  workmen's  class  consciousness  has 
attained  the  same  development  among  the  Romance  working- 
classes  as  among  the  Teutonic. 

The  first  point  of  difference  is  the  numerical  inferiority  of  the 
independent  working-class  movement  in  France  as  compared  with 
Germany.  The  number  of  votes  cast  for  socialistic  candidates 
for  the  Chamber  of  Deputies  in  1906  was  896,000,*  or  less  than 
thirty  per  cent  of  the  number  cast  at  the  German  elections  to  the 
Reichstag  in  1907.  Allowing  for  the  difference  in  population  be- 
tween the  two  countries,  the  socialist  party  is  at  least  twice  as 
strong  in  Germany  as  in  France.  The  number  of  French  trades- 
unionists  in  1906  was  836, 134,2  or  only  half  the  number  of  the 
German  workmen  that  were  then  organized  in  the  socialist 
trade-unions  alone.  Thus  the  economic  expression  of  the  French 
working-class  consciousness  was  relatively  more  highly  developed 
than  the  political,  but  still  far  behind  the  German. 

There  are  two  principal  causes  of  this  contrast.  In  the  first  place, 
the  factory  system  of  industry  is  less  highly  developed  in  France 
than  in  Germany.3  Since  both  socialism  and  trade-unionism  are 
primarily  products  of  the  factory  system  of  industry,  the  greater 

1  W.  Sombart,  Der  Sozialismus  und  die  Soziale  Bewegung,  p.  263. 

1  Sombart,  p.  266. 

1  Comparative  statistics  of  the  industrial  development  of  the  various  countries 
are  contained  in  M.  Bourguin,  Les  Systemcs  socialities  et  Involution  economique, 
3rd  edit.,  Paris,  1907,  Annexe  I. 


340  PUBLIC  OWNERSHIP  OF  TELEPHONES 

development  of  that  form  of  industrial  organization  in  Germany 
must  furnish  a  more  powerful  stimulus  to  the  growth  of  the  wage- 
earners'  class  consciousness  than  would  be  the  case  in  France. 

The  second  principal  cause  lies  in  the  temperamental  differences 
of  the  Teutonic  and  Romance  peoples.  The  French  working-classes 
display  a  greater  attachment  to  abstract  principles  than  the  Ger- 
man or  English  or  American,  but  less  capacity  to  lay  aside  minor 
differences  of  opinion  in  order  to  work  together  for  objects  on 
which  all  are  agreed.  The  French  workman  cannot  forget  the 
great  revolution  of  the  eighteenth  century,  and,  though  disap- 
pointed in  the  result,  he  prefers  to  risk  all  his  hopes  for  the  im- 
provement of  his  lot  on  a  fresh  revolution,  rather  than  undertake 
the  slower  and  more  laborious  task  of  reforming  the  existing  society 
in  his  interest  from  within.  The  work  of  building  up  an  organiza- 
tion of  wage-earners  to  secure  a  distant  advantage  at  the  expense 
of  present  sacrifice  is  less  to  the  French  wage-earners'  taste  than 
to  that  of  German  or  English  wage-earners.  One  of  the  latter  class 
is  reported  to  have  remarked  at  an  early  laborers'  international 
congress: "  When  it  is  a  question  of  voting  resolutions  our  French 
friends  are  always  ready  to  put  their  hands  in  the  air,  but  when 
they  should  put  them  in  their  pockets,  it  is  another  story."  l 

In  France  the  workmen's  associations  tend  to  assume  a  personal 
form.  The  brilliant  exponent  of  ideals  can  gain  a  passionate  fol- 
lowing, whereas  the  mere  methodical  organizer,  the  leader  who 
would  put  measures  above  men,  finds  only  indifference  or  neglect. 
Thus  the  history  of  the  socialist  movement  in  France  since  the 
Commune  is  a  history  of  discordant  factions  and  personal  feuds. 
Under  the  banner  of  the  Blanquists  were  rallied  the  violent  revolu- 
tionists who  survived  the  Commune.  The  Marxians  were  organ- 
ized under  the  independent  banner  of  Jules  Guesdes  as  soon  as 
he  dared  return  to  the  scene  of  his  former  activities.  Soon  the 
Opportunists  (Possibilistes)  "  bolted"  under  the  leadership  of  Paul 
Brousse  and  Benoit  Malon.  Finally,  after  the  collapse  of  the 
Boulanger  affair,  the  Allemanists  (so  named  from  their  leader, 
Allemane)  seceded  from  the  Broussists.  Nor  do  these  exhaust 
the  list  of  factions.  Not  until  1905,  under  the  masterly  leader- 
1  Quoted  by  Sombart,  p.  265. 


THE  LABOR  SITUATION  IN  FRANCE  341 

ship  of  Jaures,  were  these  inharmonious  elements  welded  into  a 
coherent  mass.  Even  then  the  result  was  accomplished  only  after 
the  exclusion  of  the  revisionist  Millerand  from  the  ranks  of  the 
party;  and  the  important  group  of  so-called  radical-socialists  (a 
name  which  denotes,  not  a  radical  socialist,  but  a  socialistic  rad- 
ical) remained  entirely  without  the  fold. 

The  effect  of  this  subdivision  of  the  political  movement  of  the 
working-classes  upon  the  relations  between  the  state  and  its  em- 
ployees is  unmistakable.  The  public  employees  have  never  acted 
as  a  unit  at  the  polls,  and  if  they  had,  the  disintegration  of  parties 
in  the  French  Parliament  would  have  rendered  their  efforts  of 
little  avail.  On  the  other  hand,  the  minister  at  the  head  of  the 
postal  and  telegraph  services  has  enjoyed  an  almost  unchallenged 
authority  over  his  subordinates.  Thus  the  means  of  expression 
of  the  working-class  consciousness  —  despite  the  democratic  form 
of  government  in  France  —  have  been  no  more  effective  in  that 
country  than  in  Germany.  But  if  from  the  point  of  view  of  an 
independent  and  united  working-class  movement  the  subdivision 
of  parties  and  the  arbitrary  authority  vested  in  the  so-called  re- 
sponsible ministers  have  been  unfortunate,  these  political  prac- 
tices are  not  without  some  compensating  advantages.  Like  all 
political  habits,  they  have  their  roots  deep  in  the  past  politics  of 
the  country.  France,  long  an  autocratic  monarchy,  suddenly 
in  1 789  ceased  to  be  autocratic.  This  sudden  change  in  the  polit- 
ical organization  of  the  country,  like  most  sudden  changes,  was 
made  too  hastily  to  give  permanent  satisfaction.  During  the  en- 
suing century,  a  slow  process  of  readjustment  was  necessary  until 
the  political  institutions  should  reach  a  position  where  they  would 
synchronize  with  tolerable  accuracy  the  political  aspirations  and 
the  political  capacity  of  the  French  people.  Such  a  state  of 
political  equilibrium  appears  -to  have  been  realized  under  the 
Third  Republic.  But  like  all  political  institutions,  those  of  modern 
France  are  not  ideal.  They  represent  a  compromise  between  the 
powers  of  the  age  that  is  past  and  the  powers  of  the  age  that  is  to 
be.  The  particular  form  of  this  compromise  in  contemporary 
France  is  the  combination  of  the  legislature  of  a  democracy  with 
the  executive  of  a  despotism. 


342  PUBLIC  OWNERSHIP  OF  TELEPHONES 

This  political  situation  has  had  an  important  connection  with 
the  relation  between  the  state  employer  and  its  employees.  It  has 
prevented  the  employees  from  exercising  an  important  influence 
upon  the  determination  of  their  own  conditions  of  employment. 
Neither  through  political  nor  through  economic  action  have  they 
ever  been  able  materially  to  alter  their  economic  situation.  Their 
collective  will  has  been  powerless.  But  this  same  political  situa- 
tion has  made  it  possible  for  a  socialistically  inclined  minister  to 
do  a  great  deal  to  alter  the  condition  of  the  public  employees. 
Such  a  minister  was  Millerand  during  the  years  1899-1902. 

Millerand  was  not  an  extreme  socialist.  He  did  not  owe  his 
office  to  socialist  support.  The  fact  that  he  accepted  office  in  an 
anti-collectivist  cabinet  did  not  please  his  socialist  comrades. 
His  refusal  to  resign  his  office  caused  the  disruption  of  the  socialist 
party;  and  his  conduct  in  office  led  to  his  ultimate  expulsion  from 
the  socialist  fellowship.  Yet  untimely  interrupted  as  his  minis- 
terial career  proved  to  be,  Millerand  did  not  resume  his  member's 
seat  in  the  Chamber  of  Deputies  until  he  had  wrought  changes 
in  the  conditions  of  employment  in  the  service  of  the  state  that 
no  successor  has  yet  been  able  to  ignore.  By  virtue  of  the  enor- 
mous discretionary  authority  of  the  individual  French  cabinet 
minister  and  in  spite  of  his  employees,  rather  than  with  their  aid, 
Millerand  introduced  into  France  the  principle  that  the  state 
employer  shall  be  a  model  employer.1 

Millerand 's  solicitude  was  exercised  particularly  for  the  labor- 
ers.2 He  began  his  reforms  cautiously.  First,  he  tentatively  in- 
troduced the  eight-hour  day  in  certain  postal  workshops.3  Then 
he  extended  it  to  other  shops.4  He  also  inserted  in  all  contracts 
for  the  construction  of  public  works  the  conditions  of  employ- 
ment that  he  wished  to  establish  as  a  standard  in  all  such  work.5 
These  "  model-clauses"  provided  for  a  weekly  day  of  rest  for  all 
workmen  employed  under  such  contracts,  fixed  a  limit  to  the  pro- 
portion of  alien  labor  that  might  be  employed,  established  a  nor- 

1  Cf.  Paul  Louis:  L'Ouvrier  devant  Vfitat,  p.  339. 

2  The  lower  grades  of  clerks  were  not  badly  treated,  even  according  to  his  socialistic 
standards,  under  his  predecessors. 

1  Decree  of  Sept.  16,  1899. 

4  Decrees  of  Feb.  3,  and  Jan.  15,  1901.  *  Decree  of  Aug.  10,  1899. 


THE  LABOR  SITUATION  IN  FRANCE  343 

mal  wage  to  be  paid  according  to  the  rate  current  in  the  locality 
where  the  work  was  to  be  performed,  and  limited  the  hours  of  la- 
bor to  the  number  customary  in  the  locality.1  It  hardly  needs  to 
be  added  that  he  granted  equally  favorable  terms  of  employment 
to  the  laborers  employed  directly  by  his  department.2  By  a  series 
of  decrees,  he  gave  them  security  of  tenure,  an  eight-hour  day,  a 
weekly  day  of  rest  without  loss  of  pay  (i.  e.,  they  were  paid  a  sal- 
ary, so  to  speak,  instead  of  daily  wages),  and  a  classified  schedule 
of  employments,  with  maximum  and  minimum  rates  of  wages  in 
each  class  and  fixed  rules  for  advancement.  He  introduced  extra 
payment  for  over- time  work,  and  for  work  at  night  granted  a 
corresponding  reduction  of  the  work  of  the  next  day.  In  case  of 
illness,  the  workman  was  entitled  to  full  pay  for  three  months, 
and  half-pay  for  three  months  more.  Finally  four  per  cent  of  the 
wage  was  held  back  for  an  old-age  pension,  to  which  the  gov- 
ernment added  an  equal  amount.  Laborers  who  could  not  be 
promised  permanent  employment  when  engaged  were  assured 
of  a  permanent  engagement  after  two  years'  satisfactory  service 
provided  their  services  were  continuously  required  during  that 
period.  In  any  case  they  were  entitled  to  the  same  hours  of  labor 
and  days  of  rest  as  the  permanent  employees. 

Millerand's  activity  did  not  stop  with  the  imposition  of  a  mini- 
mum wage  and  of  permanency  of  tenure  on  the  lowest  grades 
among  his  employees.  He  also  took  the  first  step  towards  their 
admission  to  a  voice  in  the  determination  of  their  terms  of  em- 
ployment. This  first  step  towards  a  rapprochement  between  state 
employer  and  employee  consisted  in  directing  the  local  division 
chiefs  to  inform  the  employees  in  regard  to  their  standing  in  the 
official  records.3  This  policy  of  taking  the  employees  into  the  con- 
fidence of  the  state  employer  was  carried  further  by  Barthou,  when 

1  In  order  to  determine  the  customary  rate,  the  department  would  accept  the 
rate,  if  any,  fixed  by  collective  agreement  between  employers  and  wage-earners  in 
the  locality.  If  there  should  be  no  such  rate,  it  would  take  the  advice  of  both  parties. 

1  Block:  Diet,  des  Finances,  sth  edit.,  1905,  pp.  2420-2421.  A.  P.  T.,  1907,  pp. 
80-91. 

1  Circular  of  Nov.  30,  1000.  This  administrative  regulation  was  confirmed  by 
Parliament  by  Art.  65  of  the  financial  law  of  April  22,  1905,  and  extended  to  all 
branches  of  the  government  service. 


344  PUBLIC  OWNERSHIP  OF  TELEPHONES 

he  became  the  head  of  the  postal  and  telegraph  service  in  1906. 
Barthou  reorganized  the  administrative  council  in  the  postal  de- 
partment and  provided  for  the  attendance  of  representatives  of 
the  employees  to  witness  the  impartiality  of  proceedings  in  rela- 
tion to  promotions.1  Promotions  are  not  made  strictly  according 
to  seniority,  but  merit  also  is  taken  into  consideration.  The  adop- 
tion of  this  method  of  making  promotions  not  only  received  the 
approval  of  the  associations  of  the  employees,  but  had  been  re- 
commended by  them.2 

The  commission  on  the  postal  budget  for  1907  recommended 
that  the  employees  be  represented  by  elected  delegates  on  all  ad- 
ministrative commissions  affecting  their  interests.3  This  recom- 
mendation, like  most  such  recommendations  in  France,  was  ignored 
by  Parliament.  Perhaps  in  no  respect  has  French  governmental 
procrastination  had  more  unfortunate  consequences  than  in  this 
neglect  to  promote  the  development  of  more  intimate  relations 
between  the  state  employer  and  its  employees,  for  it  afforded  the 
malcontents,  who  are  usually  to  be  found  in  any  large  body  of  em- 
ployees, a  pretext  for  advocating  the  resort  to  radical  tactics. 
Impatient  at  the  ill  success  which  had  greeted  independent  politi- 
cal efforts,  the  leaders  of  the  French  working-class  movement  had 
begun  to  preach  that  peculiar  course  of  tactics  known  as  syndi- 
calisme.  The  story  of  this  economic  phase  of  the  movement  can 
be  best  understood  after  a  digression  concerning  the  origin  and 
development  of  the  French  trade-union  movement  in  general. 

The  revolution  of  1789  swept  away,  along  with  the  other  medie- 
val institutions  that  had  long  outlived  their  usefulness,  the  gilds 
of  handicraftsmen.  Under  the  influence  of  the  reaction  against 
association  of  all  kinds  which  dominated  the  revolutionary  lead- 
ers, the  national  assembly  did  not  stop  at  the  abolition  of  all  the 
privileged  corporations  of  the  past,  but  also  attempted  to  estab- 
lish individual  liberty  in  economic  affairs  for  all  time  to  come. 
With  this  object  in  view,  a  series  of  laws  was  enacted,  June  14  to 

1  Decree  of  June  9,  1906. 

8  D6bats  parl.,  Ch.  des  d6p.  Speech  of  M.  Barthou,  Dec.  3, 1906.  Journal  Officiel, 
1906,  p.  2850. 
«  Steeg,  p.  1871. 


THE  LABOR  SITUATION  IN  FRANCE  345 

17,  1791,  absolutely  forbidding  professional  associations  among 
the  members  of  a  trade  for  the  purpose  of  promoting  common  in- 
terests by  collective  action.  This  result  of  the  revolution  was  per- 
petuated throughout  the  greater  part  of  the  nineteenth  century 
by  the  Code  Napoleon.  In  1864  Napoleon  the  Third  granted 
laborers  the  right  to  combine  for  the  purpose  of  obtaining  an  in- 
crease of  wages  (which  implied  the  right  to  strike)  but  for  no  other 
purpose.  Long  before  this,  even  before  the  promulgation  of  the 
Code  Napoleon,  a  reaction  had  set  in  against  compulsory  liberty, 
and  associations  of  employers  had  been  formed  under  the  tolera- 
tion of  the  government.  The  same  toleration  could  not  be  con- 
sistently withheld  from  the  associations  of  workingmen,  and  under 
the  third  Napoleon  not  a  few  trade-unions  sprang  into  existence 
under  the  suffrance  of  the  government.  Such  a  precarious  ex- 
istence, however,  could  not  fail  to  cause  much  discontent,  and 
in  1884  the  government  took  the  decisive  step  of  legalizing  the 
associations,  both  of  employers  and  of  wage-earners,  for  purely 
professional  or  trade  purposes.1 

The  law  of  1884,  however,  did  not  expressly  grant  the  right  of 
association  to  employees  of  the  state.  Whether  or  not  the  grant 
was  made  by  implication  became  a  controverted  question.  In 
1894,  the  Casimir  Perier  Ministry  refused  to  recognize  the  appli- 
cation of  the  law  of  1884  to  the  government  railroad  employees, 
and  was  forced  to  resign  by  a  hostile  vote  in  the  chamber.2  Yet 
the  most  widely  accepted  opinion  has  always  been  that  the  law  of 
1884  did  not  apply  to  governmental  employees.  In  1899  Mille- 
rand,  then  Minister  of  Industry,  Commerce,  Posts,  and  Tele- 
graphs in  the  cabinet  of  Waldeck-Rousseau,  introduced  a  bill  into 
the  chamber  to  legalize  the  formation  of  trade-unions  among  the 
employees  of  the  state.  The  bill  was  not  then  acted  upon,  and 
Millerand  introduced  it  again  in  1902,  after  he  had  become  once 
more  an  ordinary  deputy.  A  committee  was  appointed  to  inves- 
tigate the  matter,  and  under  the  chairmanship  of  Louis  Barthou 
(who  became  Minister  of  Public  Works,  Posts,  and  Telegraphs  in 
1906)  reported  in  favor  of  the  extension  of  the  provisions  of  the 

1  Loi  du  21  mars,  1884. 

*  D6bats  parl.,  Ch.  des  d6p.    Stance  du  22  mai,  1894. 


346  PUBLIC  OWNERSHIP  OF  TELEPHONES 

law  of  1884  to  certain  classes  of  governmental  employees.1  It 
recommended  that  a  distinction  be  made  between  employees  who 
hold  any  portion  of  administrative  power  and  those  who  do  not. 
The  former,  being  political  officials,  it  was  argued,  should  be  wholly 
subject  to  the  orders  of  the  head  of  the  state.  But  the  latter, 
whose  relation  with  the  public  authority  was  a  purely  economic 
one,  should  have  the  same  rights  as  employees  of  private  business 
men.  As  the  matter  then  stood,  in  the  opinion  of  the  members  of 
the  Barthou  commission  a  strike  on  the  part  of  any  public  ser- 
vants would  undoubtedly  be  a  criminal  offense.2  This  state  of 
affairs  seemed  excessively  rigorous.  No  action  was  taken  in  Par- 
liament upon  this  report,  however,  and  it  appeared  to  have  been 
forgotten,  until  in  1905  the  question  was  brought  once  more  by 
a  combination  of  circumstances  before  the  attention  of  the  cham- 
ber and  of  the  government. 

Although  the  associations  of  governmental  employees  had  no 
legal  standing  as  trade-unions,  a  number  of  such  associations  were 
formed  at  the  end  of  the  nineteenth  century  and  during  the  early 
years  of  the  twentieth.  Associations  for  any  other  purpose  than 
de  partager  des  benefices  could  be  freely  formed  under  the  law  of 
associations  of  July  i,  1901.  This  law  finally  swept  away  all  the 
old  restrictions  upon  the  freedom  of  association  which  had  been 
created  in  1791  and  perpetuated  by  the  Code  Napoleon.  In  accord- 

1  Rapport  sur  les  modifications  a  apporter  a  la  lot  de  1884,  par  M.  Barthou;  Session 
Extraordinaire  de  1903;  Docs.  parl.  no.  1418.     Four   years   later    Barthou,  as  a 
member  of  the  cabinet  of  Cle*menceau,  in  reply  to  a  question  in  the  Chamber  of 
Deputies,  completely  disavowed   the  recommendations  reported  by  Barthou,  the 
simple  deputy  of  1903.    (Journal  Officiel,  1907,  Ch.  des  Dep.,  p.  915.)  This  incident 
is  an  illuminating  commentary  on  the  nature  of  French  parliamentary  politics.     The 
distinction  which  Barthou  had  originally  proposed  to  make  was  between  "les  fonc- 
tions  de  1'autorite  et  les  fonctions  de  la  gestion."     Barthou's  argument  in  1903  was 
that  the  state  employer  ought  to  submit  to  all  the  conditions  and  legal  obligations 
to  which  private  employers  are  subjected  with  respect  to  those  whom  they  employ. 
Accordingly  the  right  to  combine  (which  included  the  right  to  strike)  should  be 
granted  to  all  employees  of  the  state,  "qui  ne  detiennent  aucune  portion  de  la  puis- 
sance publique."     Cf.  Art.  5  of  the  bill  reported  by  the  Barthou  Committee  in  1903. 

2  In  accordance  with  art.  126  (i)  of  the  Penal  Code.     This  article  reads:  — 
"Seront  coupables  de  forfaiture  et  punis  de  degradation  civique,  les  fonctionnaires 
publics  qui  auront,  par  deliberation,  arret6  de  donner  des  demissions  dont  1'objet  ou 
Teffet  serait  d'empecher  ou  de  suspendre  soit  I'administration  de  la  justice,  soit 
1'accomplissement  d'un  service  quelconque." 


THE  LABOR  SITUATION  IN  FRANCE  347 

ance  with  its  provisions  governmental  employees  could  form  as- 
sociations freely  except  for  professional  or  trade  purposes,1  and  a 
number  of  such  associations  were  actually  organized  between  1901 
and  1903.2  Besides  these  associations,  which  clearly  had  no  legal 
standing  as  trade-unions,  a  number  of  true  trade-unions  had  been 
already  formed  among  government  employees  with  the  more  or 
less  gracious  tolerance  of  the  heads  of  the  departments  concerned. 
Some  ministers  actually  encouraged  their  subordinates  to  organize. 
Thus  Millerand  in  1899  encouraged  the  formation  of  a  union  of 
postal,  telegraph,  and  telephone  laborers,  which  counted  2000 
members  within  a  few  weeks.  In  the  following  year  he  encouraged 
the  formation  of  the  General  Association  of  Postal  and  Telegraph 
Clerks,  which  counted  5500  members  within  six  months.  There  was 
also  a  union  of  the  telegraph  and  telephone  linemen.3  Similar 
unions  were  organized  in  a  number  of  other  governmental  de- 
partments, although  no  other  minister  seems  actually  to  have 
encouraged  the  movement.  Some  ministers,  on  the  contrary, 
tried  to  discourage  the  organizations  within  their  departments. 
For  example,  the  President  of  the  Council,  Combes,  dissolved  the 
unions  of  road  laborers  in  1903,  and  in  the  following  year  the 
Minister  of  Finance  ordered  the  dissolution  of  the  customs  officials' 
association.5  Thus  a  situation  grew  up  with  respect  to  unions  of 
public  employees  which  was  in  nowise  different  from  that  with 
respect  to  unions  of  private  employees  before  the  passage  of  the 
law  of  1884,  except  that  public  employees  could  under  no  circum- 
stances lawfully  strike.  Clearly  such  a  situation  could  not  con- 

1  Professor  Barthe"lemy,  author  of  a  well-known  Traitt  du  droit  administratif, 
writing  in  Le  Temps  (Jan.  27,  1906:  "La  Crise  du  fonctionnairisme"),  stated  that 
freedom  of  association  for  professional  purposes  was  not  extended  by  the  law  of  1901 
to  those  who  were  not  given  that  right  by  the  law  of  1884.  Consequently,  since 
i ooi,  governmental  employees  have  been  able  freely  to  form  social,  or  literary,  or 
religious  associations,  but  have  no  more  been  able  to  combine  for  the  purpose  of 
striking  than  before  1001. 

*  For  an  account  of  all  the  associations  of  governmental  employees  organized 
under  the  law  of  1901,  cf.  a  series  of  articles  entitled  "Les  Fonctionnaires  et  leurs 
groupements  corporatifs,"  in  the  Revue  Bleue,  June  3  to  August  26,  1905,  by  G. 
Cahen. 

1  Barthou  Report,  1903,  p.  53.  *  Ibid.,  p.  51. 

s  Maxime  Leroy:  Le  transformation  fa  la  puissance  publique  —  Les  Syndicats  des 
fonctionnaires.  Paris,  1907,  p.  203. 


348  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tinue  indefinitely.  It  was  necessary  either  that  the  power  of  the 
government  be  asserted  and  applied  uniformly  throughout  the  ser- 
vice, or  that  the  claims  of  the  associations  be  recognized. 

The  crisis  came  in  1905.*  In  the  spring  of  that  year  the  Min- 
ister of  Finance  forbade  the  organization  of  an  association  among 
the  customs  officials,  and  at  the  same  time  dismissed  the  president 
and  another  officer  of  the  Association  of  Internal  Revenue  Offi- 
cials. The  immediate  result  (April,  1905)  was  the  formation  of 
the  Federation  generate  des  associations  professionnelles  des  em- 
ployes civils  de  Vetat.  The  number  of  members  rose  to  90,000  in 
a  few  weeks,  and  for  the  time  being  this  event  riveted  the  atten- 
tion of  the  entire  country  upon  the  grievances  of  the  public  ser- 
vants. The  suddenness  of  the  outburst  was  terrifying  to  persons 
whose  notions  of  the  public  service  were  founded  solely  on  the 
literary  recollections  of  the  ancien  regime.  The  federation,  how- 
ever, by  no  means  included  all  the  organized  employees  of  the 
state.  It  was  loosely  organized  and  seems  to  have  sprung  into 
existence  solely  as  a  protest  against  the  intolerant  attitude  of  the 
government  of  the  day.  After  the  first  outburst  of  protest  had 
spent  its  force,  it  yielded  docilely  to  official  pressure  and  aban- 
doned its  militant  attitude. 

A  more  serious  problem  was  raised  by  a  general  spirit  of  dis- 
content among  the  workmen  in  the  arsenals  of  the  navy  depart- 
ment. On  several  occasions  local  strikes  occurred  and  were  vigor- 
ously repressed.  The  situation  was  particularly  serious  because 
the  workmen  in  the  arsenals  were  infected  with  the  revolutionary 
trade-unionism,  which,  under  the  name  of  syndicalism,  has  in 
recent  years  gained  the  upper  hand  in  the  French  trade-union 
movement.  The  cardinal  doctrine  in  the  creed  of  the  syndical- 
ists is  the  action  directe;  that  is,  the  belief  in  the  general  strike 
as  the  most  effective  weapon  for  promoting  the  interests  of  the 
working-classes,  together  with  a  disbelief  in  the  efficacy  of  polit- 
ical action.  Some  of  the  more  radical  of  the  leaders  of  the  syn- 
dicalists carry  their  disbelief  in  political  action  so  far  as  to  avow 

1  Cf.  the  above  work  of  M.  Leroy;  also,  the  same:  Le  droii  des  fonctionnaires, 
1906;  and  J.  PauI-Boncour:  Les  syndicats  de  fonctionnaires,  1906.  The  literature 
on  the  subject  is  already  voluminous. 


THE  LABOR  SITUATION  IN  FRANCE  349 

hostility  to  the  republic,  and  threaten  to  call  a  general  strike, 
whenever  the  republic  shall  become  involved  in  a  foreign  war. 
These  " anti-militarists "  and  "anti-patriots"  constitute  such  a 
danger  to  the  Republic  on  the  one  side  as  the  Royalists  do  on  the 
other. 

The  President  of  the  Council,  Rouvier,  who  succeeded  Combes 
in  the  spring  of  1905,  declared  in  the  Chamber  of  Deputies  that 
he  would  never  tolerate  the  assumed  right  to  strike  on  the  part 
of  workmen  in  the  arsenals.1  Rouvier  declared  that  the  proposal 
made  by  Barthou  in  1903  to  extend  the  right  to  strike  to  em- 
ployees of  the  state  who  were  not  detenteurs  d'une  parcelle  de  la 
puissance  publique  was  too  broad.  It  would  be  necessary  also  to 
exclude  from  the  right  to  strike  all  employees  connected  in  any 
way  with  the  national  defense.2  One  of  the  socialist  deputies  ob- 
served in  reply  that  the  connection  between  the  arsenals  and  the 
national  defense  was  no  more  intimate  than  that  between  the 
railroads  (both  state  and  private)  and  the  national  defense.  But 
the  right  to  strike  was  not  denied  to  the  railroad  employees.8 
Under  the  pressure  of  political  conditions,  however,  the  govern- 
ment was  supported  by  a  majority,  and  not  only  the  right  of 
governmental  employees  connected  with  the  national  defense,  but 
of  all  others  to  strike  in  time  of  peace,  remained  unrecognized. 

Rouvier's  other  argument  for  the  denial  of  the  right  to  strike 
was  that  the  governmental  employees  had  their  proper  represen- 
tation in  the  Parliament.4  As  citizens  they  were  entitled  to  that, 
and  as  employees  of  the  state  they  were  not  entitled  to  more. 
Consequently  he  refused  absolutely  to  recognize  the  employees' 
associations,  although  he  continued  the  policy  of  tolerating  them. 
The  actual  position  of  the  employees  of  the  state  was  shortly  after- 

1  De"bats  parl.,  Ch.  des  d6p.,  Nov.  7, 17,  and  18,  1905.  See  esp.  Journal  Officiel, 
at  pp.  3080  and  3348. 

2  The  same  argument  was  advanced  by  Camille   Pelletan,  former  Minister  of 
Marine,  who  had  put  down  a  strike  in  an  arsenal  during  his  term  of  office.     "  Je  ne 
pouvais  6tablir  aucun  assimilation  entre  les  ouvriers  de  1'industrie  prive"e  et  les  ouvri- 
ers  de  la  d6fense  nationale."    D£bats  parl.,  Ch.  des  de"p.,  Nov.  17,  1905,  Journal 
Officiel,  p.  3351. 

1  Marcel  Sembat,  Nov.  17,  1905. 

4  "La  representation  nationale  est  1'organisme  de  conciliation  entre  les  employes 
de  I'fitat  et  les  ministres  detenteurs  du  pouvoir."  Cf.  Steeg,  pp.  1860-1873. 


350  PUBLIC  OWNERSHIP  OF  TELEPHONES 

wards  neatly  epitomized  by  the  following  quotation  from  an 
article  published  in  Le  Temps : 1  "  Governmental  employees  are 
persons  who  have  voluntarily  alienated  a  part  of  their  liberty. 
They  are  bound  to  maintain  a  certain  reserve  towards  the  govern- 
ment which  they  have  solicited  the  honor  to  serve.  They  have 
always  one  means  of  expressing  their  opinion:  the  ballot." 

Why  it  should  be  necessary  for  a  person  who  "  solicits  the  honor  " 
of  serving  the  government  in  the  capacity  of  telephone  lineman, 
for  example,  to  surrender  a  part  of  his  liberty  is  a  question  which  a 
great  many  such  persons  now  began  to  ask  themselves.  The  em- 
ployees had  no  influence  over  Parliament,  and  could  not  apply 
labor's  ordinary  weapon  in  conflicts  with  capital  without  render- 
ing themselves  liable  to  prosecution  as  criminals. 

The  government's  policy  simply  demoralized  the  employees. 
The  source  of  danger  did  not  lie  in  any  alleged  lack  of  generosity 
in  the  treatment  by  the  government  of  its  employees,  for  whether 
compared  with  analogous  employments  in  private  industry  or  with 
the  public  service  in  other  countries,  the  material  conditions  of 
employment  in  the  French  postal  and  telegraph  service  were  good. 
It  lay  in  the  mischievous  spirit  which  had  been  planted  in  the  ser- 
vice by  the  uncertainties  of  the  legal  position  of  the  employees, 
and  fostered  by  the  further  uncertainty  produced  by  the  suspicion 
that  the  good  of  the  service  had  too  often  been  sacrificed  under 
political  pressure  for  private  ends.  The  "spoils  system,"  as  it  is 
known  in  the  United  States,  has  never  gained  a  foothold  in  France, 
but  a  strong  feeling  had  grown  up  that  the  interference  of  politi- 
cians in  the  conduct  of  departmental  affairs,  especially  in  regard 
to  promotions,  had  become  too  frequent  to  be  compatible  with 
the  reward  of  effort  according  to  merit,  and  so  with  the  true  in- 
terests of  the  employees  and  of  the  public  service.  Under  the 
existing  relations  between  state  employer  and  employees,  the  latter 
possessed  no  recognized  and  effective  vehicle  for  the  expression 
of  their  grievances.  The  result  was  to  bring  on  among  the  em- 
ployees what  the  commission  on  the  budget  in  1907  described  as 
a  crise  morale. 

In  the  same  year,  Clemenceau,  the  President  of  the  Council, 

1  Le  Temps,  Aug.  24,  1905. 


THE  LABOR  SITUATION  IN  FRANCE  351 

introduced  a  bill  to  make  lawful  the  formation  of  trade-unions 
among  the  employees  of  the  state  under  the  following  restrictions: 

(1)  only  employees  of  the  same  department  or  business  under- 
taking (regie)  may  belong  to  the  same  association; 

(2)  they  may  not  combine  except  to  promote  their  own  inter- 
ests;1 

(3)  though  complaints  may  be  laid  before  the  head  of  the  de- 
partment, any  employee  inciting  another  by  word  or  threat  to 
strike  is  liable  to  imprisonment. 

This  bill  was  to  apply  only  to  civil  employees,  and  was  intended, 
according  to  the  preamble,  to  give  to  such  public  employees  the 
rights  that  belong  to  all  citizens,  while  reserving  to  the  govern- 
ment the  control  needful  in  order  to  insure  the  proper  conduct  of 
public  affairs.2  The  bill  apparently  satisfied  nobody,  and  as  late 
as  the  beginning  of  1909  no  action  had  been  taken  with  regard 
to  it.  The  government  blindly  followed  its  habitual  policy  of 
procrastination,  notwithstanding  the  fact  that  it  was  impossible 
to  be  cognizant  of  the  demoralization  that  prevailed  in  the  service 
and  believe  that  the  existing  situation  could  indefinitely  endure 
without  change.3 

1  That  is,  the  unions  should  have  no  connection  with  one  another  nor  with  the 
general  federation  of  unions,  the  Confederation  gentrale  du  travail,  which  at  that  time 
was  under  the  control  of  the  revolutionary  wing  of  the  trade-union  movement. 

*  Docs,  parl.,  Ch.  des  dep.,  1907,  Annexe  No.  833. 

1  The  strikes  of  the  postal,  telegraph  and  telephone  employees  of  March  and 
May,  1909, .and  of  the  railroad  employees  of  October,  1910,  are  matters  of  recent 
history  which  fall  outside  of  the  limits  of  the  present  discussion.  Apparently, 
the  Briand  ministry,  as  reorganized  in  November,  1910,  will  make  a  serious  at- 
tempt to  place  the  relations  between  the  state  and  its  employees  on  a  satisfactory 
basis. 


PART    IV 

PUBLIC  OWNERSHIP  OF  TELEPHONES  IN  SOME 
OTHER  COUNTRIES  ON  THE  CONTINENT  OF 
EUROPE 


CHAPTER  XX 

THE  PROMOTION  OF  TELEPHONE  UNDERTAKINGS  BY  PRIVATE  ENTER- 
PRISE IN  BELGIUM,  HOLLAND,  AUSTRIA,  HUNGARY,  AND  ITALY  l 

THE  same  reasons  which  led  the  French  telegraph  authorities 
to  decline  the  responsibility  for  the  conduct  of  initial  experiments 
with  the  telephone  induced  most  of  the  other  telegraph  adminis- 
trations of  Continental  Europe  to  do  likewise.  All  failed  to  per-  > 
ceive  any  close  relation  between  the  new  invention  and  the  tele- 
graph service  which  they  were  charged  to  carry  on,  and  preferred 
to  await  developments  before  committing  themselves  to  any  de- 
finite policy.  The  only  way  to  do  this  with  safety  was  to  grant 
limited  concessions  to  private  speculators.  This  they  uniformly 

did. 

I.  BELGIUM 

The  history  of  the  introduction  of  the  telephone  into  Belgium 
closely  resembles  that  of  its  introduction  into  France.  The  tele- 

1  For  the  early  history  of  the  telephone  on  the  Continent  of  Europe  outside  of  Ger- 
many, Switzerland,  and  France,  I  have  had  recourse  to  secondary  sources  of  infor- 
mation. All  European  legislation  concerning  the  telephone  has  been  reprinted 
in  the  Journal  Telegraphique  (cited  as  J.  T.),  the  organ  of  the  International  Tele- 
graph Bureau  at  Berne.  Notices  of  the  same  and  comment,  besides  many  spe- 
cial articles  of  value,  have  been  printed  in  the  Archiv  fur  Post  und  Telegraphic 
(cited  as  A.  P.  T.),  the  official  publication  of  the  German  Imperial  postal  and  tele- 
graph administration.  Further  information  is  contained  in  the  contemporary  scien- 
tific periodicals,  of  which  by  far  the  most  important  is  the  Elektrotechnische  Zeitschrift 
(cited  as  E.  T.  Z.),  the  standard  organ  of  the  German  electrotechnical  industry. 
Recently  (since  1906)  a  special  publication,  devoted  to  the  interests  of  the  tele- 
phone and  allied  industries,  has  appeared,  the  Zeitschrift  fur  Sckwachstromtechnik. 
Books  dealing  with  the  telephone  from  any  except  the  purely  technical  standpoint 
are  scarce.  J.  Brault:  Le  Telephone  en  1888.  Histoire  de  la  telephonie  et  exploitation 
des  telephones  en  France  et  a  Vetranger  (Paris,  1888)  is  wholly  uncritical.  A.  R. 
Bennett:  The  Telephone  Systems  of  the  Continent  of  Europe  (London,  1895)  con- 
tains a  valuable  collection  of  material  in  relation  to  mutual  and  cooperative  tele- 
phony and  the  small  local  private  systems  of  a  similar  nature,  which  flourished  in 
the  Scandinavian  countries  in  the  early  days  of  telephony.  Bennett's  book  un- 
fortunately was  written  to  prove  the  expediency  of  encouraging  the  establishment 
of  mutual  telephone  systems  in  England,  and  is  marred  by  a  bias  that  too  often 
warps  the  author's  judgment. 


356  PUBLIC  OWNERSHIP  OF  TELEPHONES 

graph  was  a  public  monopoly  in  Belgium  as  in  France.  The  first 
experiments  with  the  Bell  telephone  in  the  former  country  were 
made  in  1878.  The  government  was  unable  to  discern  a  want  in 
the  telegraph  service  that  the  telephone  could  supply,  and  declined 
to  introduce  it  into  the  public  telegraph  system.  In  1879  a  tele- 
phone company  was  formed  in  Brussels  to  undertake  the  exploita- 
tion of  the  invention.  This  company  established  exchanges  in  a 
few  of  the  larger  industrial  cities  and  equipped  a  number  of  manu- 
facturing plants  with  telephonic  signal  systems.  The  government 
granted  concessions  for  the  operation  of  exchange  systems  to  all 
who  applied  for  them.  A  number  of  companies  quickly  entered 
J  the  field,  and  in  some  of  the  more  important  cities  vigorous  com- 
petition sprang  up.1 

The  state  of  affairs  that  ensued  is  thus  described  by  the  Belgian 
Minister  of  railways,  post  offices  and  telegraphs,  Van  den  Peere, 
in  a  speech  in  the  Chamber  of  Deputies  in  1885 : 2  — 

"  In  Brussels  there  were  three  competing  companies.  The  con- 
v  fusion  between  the  lines  was  so  great  that  when  an  interruption 
of  service  occurred  it  was  not  unusual  to  see  representatives  of 
all  three  companies  hastening  to  the  locality  of  the  interruption, 
none  of  whom  knew  to  which  company  the  line  belonged  that  had 
caused  the  mischief;  and  owners  of  buildings  on  which  lines  were 
erected  did  not  know  which  company  should  bear  the  blame  for 
the  damage  to  their  property." 

In  order  to  put  an  end  to  the  intolerable  inconveniences  of  un- 
restricted competition,  the  public  authorities  encouraged  the  va- 
rious companies  to  amalgamate.  The  result  was  the  formation  of 
the  Compagnie  beige  des  telephones  Bell  in  i882.3  Then,  since  the 
•theory  of  free  competition  had  broken  down,  the  public  authori- 
ties set  about  the  task  of  properly  regulating  the  conduct  of  the 
telephone  business. 

By  the  law  of  June  n,  1883,  the  telephone  business  was  declared 
I/  to  be  within  the  scope  of  the  public  telegraph  monopoly.4  At  the 

1  Brault,  p.  165. 

a  Belgique,  Chambre  des  d£put6s,  s6ance  du  7  juillet,  1885.    Proems-verbal. 

3  E.  T.  Z.,  1893,  p.  31. 

4  Loi  concernant  I'^tablissement  et  1'exploitation  de  reseaux  te"lephoniques  du  n 
juin,  1883. 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.         357 

same  time  provision  was  made  for  the  granting  of  concessions 
which  would  enable  private  enterprise  to  carry  on  the  local  ex- 
change business.  The  conditions  of  these  concessions  were  fixed  in 
advance  in  a  cahier  des  charges  which  accompanied  the  law.  Con- 
cessions would  be  granted  for  the  conduct  of  exchange  operations 
in  stipulated  local  areas  for  a  period  of  twenty-five  years.  At  their 
expiration  the  plant  of  the  concessionaires  should  revert  to  the 
government  free  of  charge.  Throughout  the  period  of  concession 
the  concessionaires  should  pay  the  government  a  compensation 
of  five  francs  per  telephone  station  in  operation.  The  govern- 
ment reserved  the  right  of  canceling  the  concessions  and  pur- 
chasing the  plant  of  the  concessionaires  after  ten  years.  In  case 
it  should  exercise  this  reserved  right  it  bound  itself  to  pay  the 
actual  value  of  the  plant,  as  determined  by  experts,  plus  a  com- 
pensation for  compulsory  purchase  based  on  the  average  net  profit 
of  the  three  preceding  years  plus  an  additional  15  %  of  the  sum 
so  determined. 

The  cahier  des  charges  does  not  make  it  clear  just  what  was 
meant  by  "  actual  value."  This  might  be  the  value  as  a  going 
concern,  or  the  cost  of  replacement,  or  the  original  cost  of  the 
plant  less  depreciation  (this  is  most  likely) ;  or  even,  though  im- 
probably, merely  the  value  of  the  material  in  the  plant  for  pur- 
poses of  reconstruction.  However,  this  ambiguity  was  not  serious, 
as  the  machinery  was  provided  for  settling  any  disputes  that  might 
arise  on  that  score.  On  the  whole,  these  concessions  were  well 
devised,  and  were  much  superior  to  those  issued  in  France. 

Several  such  concessions  were  at  once  granted  and  exchange 
operations  in  the  leading  cities  conducted  in  accordance  with  their 
terms.  Provision  was  made  for  the  connection  of  exchange 
systems  with  the  public  telegraph  system  in  order  to  facilitate 
the  transmission  of  inter-urban  messages  and  their  more  rapid 
delivery,  by  a  combination  of  the  two  services.  In  1884  the  state 
began  the  construction  of  long-distance  telephone  lines  in  order 
to  improve  the  inter-urban  service,  the  first  line  being  estab- 
lished between  Brussels,  the  capital  of  the  kingdom,  and  Antwerp, 
its  chief  commercial  center.1 

1  A.  P.  T.,  1887,  p.  137- 


358  PUBLIC  OWNERSHIP  OF  TELEPHONES 

In  1886  the  public  authorities  became  dissatisfied  with  the  dis- 
/  position  displayed  by  the  concessionnaires  to  confine  their  opera- 
tions to  the  larger  and  presumably  more  remunerative  centers.  It 
consequently  determined  itself  to  supply  the  service  in  the  places 
of  lesser  importance  and  to  grant  no  more  concessions  to  private 
enterprise.  This  decision  foreshadowed  the  exercise  by  the  Govern- 
ment of  its  option  of  purchase,  as  soon  as  the  first  ten  years  of 
operation  under  the  concession  of  1883  should  expire.  The  private 
companies,  of  which  there  were  four  in  existence  in  1890,  at- 
tempted to  secure  the  reversal  of  this  policy  of  public  ownership,1 
but  without  success.  January  i,  1893,  the  telephone  systems  of  the 
Bell  interests  were  taken  over  by  the  state,  and  the  others  were 
secured  as  soon  as  the  terms  of  their  concessions  permitted.2  By 
1896  there  were  no  private  telephone  exchanges  in  Belgium.3 

II.  HOLLAND 

In  Holland  the  telegraph  was  a  public  monopoly  by  virtue  of 
the  law  of  March  7,  1852.  When  the  telephone  appeared  on  the 
scene  the  telegraph  authorities  assumed  it  to  be  within  the  scope 
of  their  telegraph  monopoly,  but  announced  their  decision  to  grant 
concessions  for  a  limited  period  for  the  establishment  of  exchange 
systems.  A  number  of  concessions  were  soon  issued,  of  which  those 
for  the  most  important  cities  were  secured  by  the  N ederlandsche 
Bell  Telefoon  Maatschappij.*  This  company  was  formed  in  1881 
to  take  over  the  rights  previously  held  by  the  International  Bell 
Telephone  Company  of  New  York.  Contrary  to  the  practice  of 
the  other  telegraph  authorities,  which  handed  over  the  task  of 
constructing  exchange  systems  to  private  companies,  the  Dutch 
also  permitted  their  concessionnaires  to  establish  inter-urban  tele- 
phone lines.  These  lines  were  built  under  a  special  license  in  ac- 
cordance with  which  they  could  be  purchased  by  the  government 
at  the  expiration  of  the  license,  September  30,  1897,  at  the  cost 
of  construction.5 

1  A.  P.  T.,  1890,  p.  189;  1892,  Art.,  "Das  Telegraphenwesen  in  Holland  und 
Belgian,"  pp.  1-22,  36-49,  83-90. 

2  E.  T.  Z.,  1893,  p.  31.  8  J.  T.,  1898,  Statistique  ge'ne'rale  des  telephones. 
4  A.  P.  T.,  1892,  Art.  cited  above.    Cf.  Brault,  p.  114. 

1  A.  P.  T.,  1887,  p.  718. 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.        359 

The  result  was  that  in  a  country  of  such  narrow  limits  as  Hol- 
land the  effect  of  the  competition  of  the  telephone  with  the  tele- 
graph was  quickly  apparent.  It  became  more  and  more  serious 
as  the  telephone  systems  expanded.  By  the  time  the  licenses  of 
the  long-distance  lines  expired  in  1897,  the  telegraph  authorities 
were  only  too  glad  to  re-take  that  part  of  the  telephone  business 
into  their  own  hands.1  The  deficits  on  the  operation  of  the  tele- 
graphs, however,  which  had  begun  long  before  the  introduction 
of  the  telephone,  and  had  been  increased  by  the  subsequent  com- 
petition of  the  latter,  have  continued. 

The  telegraph  authorities  still  did  not  care  to  undertake  the 
local  exchange  business.  The  short-sighted  business  methods  of 
the  private  companies,  particularly  of  the  Bell  Company,  in  the 
big  commercial  centers,  had  aroused  however  a  spirit  of  discon- 
tent. Telephone  subscribers  felt  that  they  had  no  protection 
against  exorbitant  charges,  nor  assurance  of  efficient  service,  and 
demanded  municipal  ownership  of  telephones.  The  telegraph  au- 
thorities were  not  loth  to  let  the  municipalities  relieve  them  of  the 
task  of  guarding  the  interests  of  local  users,  and  so  the  municipal 
authorities  in  many  places  have  taken  the  exchange  business  into 
their  own  hands.2 

In  1894  the  Bell  Telephone  Company  operated  sixteen  exchange 
systems  in  Holland,  including  the  systems  in  Amsterdam,  Rot- 
terdam, the  Hague,  and  the  other  leading  cities.  Ten  years  later 
it  operated  nineteen,  but  none  in  cities  of  the  first  rank.3  In  both 
Amsterdam  and  Rotterdam  the  disaffection  with  the  service  was 
so  great  that  the  city  authorities  refused  even  to  purchase  the 
company's  plant  on  expiration  of  the  local  concessions.  Instead, 
they  built  entirely  new  systems  which  were  ready  to  be  opened  on 
the  day  after  the  termination  of  the  concessions,  October  30, 1896.* 
The  company  was  forced  to  tear  down  its  plant  and  throw  on  the 
scrap  heap  so  much  of  it  as  could  not  be  used  again  elsewhere. 
The  Hague  opened  a  municipal  system  in  1903,  whereupon  the 

1  ibid.,  1889,  P.  899. 

1  Municipal  A  fairs,  vol.  iv,  p.  24:  "Municipal  Telephones  in  Amsterdam." 

1  Tarifs  til.  vols.  i  and  ii,  p.  78  and  pp.  246-57,  respectively. 

4  Report  of  the  Chamber  of  Commerce  at  Amsterdam  for  the  year  1896,  p.  45. 


360  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Bell  voluntarily  withdrew.  In  all,  twenty-two  municipalities  were 
operating  their  own  exchanges  in  1904.  During  the  decade  from 
1894  to  1904  the  total  number  of  local  exchanges  increased  from 
thirty-three  to  sixty.  Thus  municipal  ownership  of  telephones 
has  made  more  headway  than  private  ownership.  The  prevailing 
tendency  at  present  still  is  for  the  former  to  gain  ground  over  the 
latter.1 

Some  indication  of  the  comparative  performances  of  municipal 
and  private  telephone  undertakings  in  Holland  is  afforded  by  a 
discussion  of  the  question  of  telephone  rates.  In  Amsterdam  and 
Rotterdam  the  Bell  rate  in  force  in  1894  was  approximately  $47.20, 
taking  the  gulden  as  worth  40  cents,  for  a  direct  line  with  un- 
limited service.2  That  seems  to  have  been  the  only  rate  and  the 
only  service  that  the  company  offered.  A  decade  later,  under 
municipal  management,  the  charges  had  been  greatly  reduced  and 
the  service  classified  on  the  basis  of  business  and  residential  sub- 
scriptions.3 The  former  was  approximately  $36,  the  latter  $26.40, 
a  reduction  of  24%  to  business  subscribers  and  of  42%  to  resi- 
dential subscribers.  In  the  Hague  the  substitution  of  municipal 
for  private  ownership  was  followed  by  a  reduction  from  $46  to 
$26.  In  the  thirteen  smaller  places  in  which  the  Bell  carried  on 
an  exchange  business  in  1894,  the  single  flat  rate  was  approxi- 
mately $24.  Ten  years  later  the  rate  in  the  nineteen  small  places 
in  which  the  Bell  at  that  time  was  conducting  an  exchange  business 
was  $16.  At  the  earlier  date  the  rates  in  force  in  the  similar  small 
places,  where  the  exchange  systems  were  in  the  hands  of  other 
companies  than  the  Bell,  ranged  from  $12  to  $18.  In  1904  these 
rates  were  unchanged. 

The  connection  between  the  change  of  policy  and  the  change  of 
rates  is  incontestable.  The  result  of  municipal  ownership  in  the 
Netherlands  has  been  a  greater  reduction  of  rates  than  has  oc- 
curred during  the  same  period  of  telephone  development  in  any 
part  of  Europe  except  in  France,  where  private  enterprise  was  also 

1  I  am  indebted  for  much  information  concerning  municipal  telephones  in  the 
Netherlands  to  the  kindness  of  some  of  the  municipal  telephone  authorities,  espe- 
cially to  Mr.  E.  J.  Kist,  director  of  the  municipal  telephone  service  at  Rotterdam. 

»  Tarifs  ttl.  vol.  i,  pp.  77-79.  *  Tarifs  til.  vol.  ii,  pp.  246-257. 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.        361 

succeeded  by  public  ownership.  There  is,  of  course,  no  compari- 
son with  the  rates  in  places  that  have  never  been  supplied  with 
telephone  service  except  by  the  public  authorities,  because  the 
latter  were  able  to  establish  their  rates  at  the  beginning  on  a  more 
reasonable  level  than  were  the  private  companies.  The  experi- 
ence of  the  Dutch  municipalities  simply  serves  to  corroborate  the 
lesson  taught  by  the  experience  of  France.  Any  community  that 
employs  private  enterprise  to  relieve  it  of  the  initial  risk  in  the 
introduction  of  a  new  service,  must  pay  a  price  for  the  relief  it 
has  secured,  in  case  the  venture  proves  a  success.  Such  a  pay- 
ment is  not  only  unavoidable  in  practice,  but  the  underlying  prin- 
ciple is  without  question  fair. 

Whether  the  actual  price  which  the  Dutch  municipalities  were 
called  upon  to  pay  was  reasonable  or  unreasonable  is  a  more 
dubious  question.  A  company  doing  business  under  a  special 
concession  is  lawfully  entitled  to  as  great  a  profit  as  it  can  make, 
provided  that  it  keeps  within  the  terms  of  its  concession.  If  this 
profit  proves  to  be  unexpectedly  large,  it  is  nevertheless  a  legiti- 
mate consequence  of  the  conditions  under  which  the  risk  of  the 
original  contract  was  assumed  by  the  respective  parties  —  the 
promoter  of  the  venture  and  the  public  authorities.  To  be  sure, 
public  authorities  are  not  always  wise  in  the  making  of  such  con- 
tracts, and  grant  concessions  under  conditions  which  never  ought 
to  be  granted,  but  that  is  not  a  reason  for  condemning  the  pro- 
moter who  takes  advantage  of  the  circumstance.  A  promoter, 
however,  who  wishes  to  be  intrusted  with  the  exclusive 
management  of  an  undertaking  of  general  public  importance, 
must  recognize  that  he  holds  a  public  trust.  It  is  wise  policy,  in 
the  long  run,  and  perhaps  also  a  source  of  satisfaction  for  indi- 
viduals or  corporations  with  local  associations,  to  render  good 
service  to  the  community  which  bestows  such  a  trust.  That  the 
Netherlands  Bell  Telephone  Company,  in  the  earlier  portion  of 
its  history,  displayed  a  flagrant  disregard  of  public  opinion,  is  made 
evident  by  the  fact  that  the  authorities  at  Amsterdam  and  Rotter- 
dam refused  to  have  any  dealings  with  it  at  the  expiration  of  the 
local  concessions.  In  thus  disregarding  public  opinion,  the  mana- 
gers of  the  Netherlands  Bell  Telephone  Company  showed  a  con- 


362  PUBLIC  OWNERSHIP  OF  TELEPHONES 

siderable  amount  of  business  incapacity,  for  which  they  paid  the 
penalty.  The  possibility  of  such  business  incapacity  is  one  of 
the  factors  which  must  always  be  reckoned  with  when  the  admin- 
istration of  such  a  business  as  the  telephone  is  handed  over  for 
any  considerable  period  to  a  private  monopolist. 

By  the  adoption  of  the  policy  of  municipal  ownership,  the  Dutch 
municipalities  seemed  to  have  accomplished  the  object  which  they 
had  in  view.  Those  municipalities  which  took  the  telephone  busi- 
ness out  of  the  hands  of  the  private  companies  demonstrated  their 
ability  to  reduce  the  rates.  Those  municipalities  which  chose  to 
adhere  to  the  old  policy  of  granting  special  concessions  were  able 
to  take  advantage  of  the  success  of  the  municipal  telephone  under- 
takings and  compel  their  concessionnaires  to  make  similar  reduc- 
tions of  rates,  or  forfeit  their  concessions  at  their  expiration.  The 
character  of  the  service  has  not  deteriorated  under  municipal 
ownership;  on  the  contrary,  it  has  improved,  especially  in  the 
larger  cities  where  improvement  was  most  needed.  The  directors 
of  a  municipal  telephone  service  manage  their  undertaking  on  the 
same  principle  as  they  would  a  municipal  water  supply.  They 
make  the  service  as  good  as  they  can,  and  then  assume  that  those 
citizens  who  care  to  participate  in  its  benefits  will  do  so  volun- 
tarily. There  is  no  advertising,  nor  canvassing  for  new  business, 
as  in  ordinary  private  businesses.  The  managers  concentrate 
all  their  resources  in  the  effort  to  give  as  satisfactory  a  service  as 
possible.  In  the  three  largest  Dutch  cities  the  service  is  tendered 
by  the  most  up-to-date  equipment.  The  Hague  installed  common 
battery  switchboards  with  incandescent  lamp  signals  in  1903, 
Amsterdam  in  1906,  and  Rotterdam  in  1907.  The  method  of  charge 
in  1907  was  still  the  flat  rate  for  an  unlimited  service,  but  the 
introduction  of  measured-service  rates  was  already  under  con- 
sideration, and  was  to  be  put  into  effect  in  Rotterdam  after  the 
reconstruction  of  the  exchange  office  was  finished.  All  the  munici- 
pal undertakings  were  being  operated  on  a  sound  financial  basis, 
and  fresh  capital  was  furnished  as  fast  as  required  by  the  muni- 
cipal authorities. 

The  drawback  to  the  municipal  ownership  of  telephones,  as  it 
exists  in  Holland,  is  that  the  limits  of  municipal  areas  do  not  cor- 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.         363 

respond  with  those  of  the  most  desirable  exchange  areas.  Each 
municipal  undertaking  enjoys  a  monopoly  of  exchange  operation 
within  the  limits  of  a  circle  with  a  radius  of  five  kilometers  cir- 
cumscribed about  the  center  of  the  municipality.  This  arbitrary 
delimitation  of  the  exchange  area  often  excludes  persons  from 
participation  in  the  benefits  of  a  given  exchange  system  whose 
wants  cannot  be  so  satisfactorily  met  by  an  exchange  system  situ- 
ated in  any  other  area.  Others  are  included  in  a  municipal  ex- 
change area  who  reside  outside  the  municipal  limits  and  are  not 
infrequently  charged  higher  rates  than  are  the  citizens  of  the 
municipality  which  owns  the  exchange  system  in  that  area.  These 
are  evils,  however,  which  result,  not  from  the  fact  of  municipal 
ownership,  but  from  the  attempt  to  divide  the  administration  of 
the  telephone  business  between  the  central  and  the  local  authori- 
ties. The  essence  of  such  a  division  is  the  creation  of  more  or  less 
arbitrary  limits  to  the  competency  of  the  local  authorities.  In 
such  a  business  as  the  telephone  where,  above  all  else,  it  is  the 
annihilation  of  all  spatial  barriers  that  is  desired,  such  division 
of  responsibility  for  the  conduct  of  the  business  and  such  restric- 
tion of  the  authority  of  the  various  local  managements  is  certain 
to  cause  friction  and  dissatisfaction.  Moreover,  these  restrictions 
prevent  the  administration  of  the  service  as  a  whole  in  the  best 
interests  of  all  its  parts.  The  policy  of  municipal  ownership  has 
the  advantage  of  utilizing  local  initiative  to  its  fullest  extent.  It 
sacrifices,  on  the  other  hand,  the  even  greater  advantages  that 
are  derived  in  the  telephone  business  from  the  centralization  of 
management.  This  drawback,  however,  is  not  the  result  of  the 
principle  of  public  ownership,  but  of  the  particular  form  of  busi- 
ness organization  which  the  public  authorities  in  Holland  have 
adopted. 

in.  AUSTRIA 

The  telephone  was  first  introduced  into  Austria  in  1879  by  the 
war  department,  in  order  to  facilitate  the  transmission  of  or- 
ders at  the  great  military  post  of  Cracow.1  The  first  telephone 
exchange  was  established  in  Vienna  in  1 88 1  by  a  private  company, 
to  which  a  concession  had  been  granted  by  the  telegraph  author- 

1  Brault,  p.  160. 


364  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ities.  No  more  concessions  were  applied  for  until  1883.  Then 
several  were  granted  for  a  number  of  the  more  important  com- 
mercial centers.  In  1886  the  question  of  the  construction  of  long- 
distance lines  arose,  and  the  telegraph  authorities  decided  to  do 
that  themselves.  In  the  following  year  they  established  their  first 
local  exchange.1 

The  reasons  for  this  cnange  of  policy  on  the  part  of  the  tele- 
graph authorities  were,  partly  that  the  companies  owning  the  origi- 
nal concessions  restricted  their  operations  to  the  greater  commer- 
cial centers  and  declined  to  extend  the  service  to  medium-sized 
places  without  more  favorable  concessions,  and  partly  that  the 
telegraph  authorities  themselves  were  encouraged  by  the  success 
of  the  private  companies  and  were  now  willing  to  undertake  the 
business  on  their  own  account.2  At  the  time  they  came  to  this 
decision  the  concessionnaires  were  making  good  profits,  but  most 
of  the  concessions  were  due  shortly  to  expire.  That  of  the  Austrian 
Telephone  Company,  formerly  the  Consolidated  Construction 
and  Maintenance  Company,  Limited,  of  London,  granted  in  1882, 
ran  only  for  ten  years,  as  did  also  those  of  the  Vienna  Telephone 
Company,  except  that  for  its  first  exchange  in  Vienna  itself.  The 
telegraph  authorities,  however,  were  determined  to  regain  com- 
plete control  of  the  industry,  and  ultimately  bought  in  the  latter 
concession  in  1895  before  its  expiration.3 

The  ministerial  order  of  October  7,  1887,  which  first  definitely 
committed  the  government  to  the  policy  of  public  ownership, 
was  an  open  declaration  that  the  telegraph  authorities  had  learned 
all  they  wished  from  the  initial  experimentation  of  private  en- 
terprise. They  could  now  foresee  the  future  growth  of  the  tele- 
phone industry,  and,  foreseeing  that,  they  felt  bound,  not  only 
in  the  interest  of  the  inhabitants  of  medium-sized  cities,  but  in 
that  erf  their  own  telegraphs,  to  take  back  the  industry  into  their 
own  hands.  In  Austria  it  did  not  require  a  long  experience  to 
convince  the  public  authorities  that  the  conduct  of  the  telephone 
business  was  a  task  which  they  could  not  leave  to  others  with 

1  A.  P.  T.,  1889,  p.  475;  1888,  pp.  186-191.  J.  T.,  1890,  pp.  77-79. 

2  A.  P.  T.,  1891,  pp.  41-45;  1892,  p.  340. 
8  J.  T.,  1896,  Statistiques. 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.        365 

profit  to  the  community,  while  they  retained  the  telegraphs  in 
their  own  hands.  Rather  than  abandon  the  telegraphs  they  ac- 
quired the  telephones. 

IV.  HUNGARY 

In  Hungary,  the  Vienna  Telephone  Company  secured  a  con- 
cession in  1882  to  establish  an  exchange  in  Budapest.1  The  same 
events  which  served  to  convince  the  Austrian  authorities  of  the 
wisdom  of  regaining  complete  control  of  the  industry  had  a  like 
effect  upon  the  Hungarian. 

The  Hungarian  law  of  August  8,  1888,  concerning  telegraph, 
telephone  and  other  electrical  undertakings,  reserved  to  the  state 
the  exclusive  right  to  establish  thereafter,  and  operate,  telegraphs, 
telephones,  or  electrical  signals  of  any  sort.2  Private  persons 
should  be  permitted,  however,  to  erect  such  undertakings  on 
their  own  property  and  solely  for  their  own  use.  Concessions 
by  the  Minister  of  Public  Works  and  Commerce,  the  head  of  the 
postal  and  telegraph  administration,  for  public  telephone  sys- 
tems might  be  granted  under  certain  conditions.  The  con- 
cessions should  be  limited  to  fifty  years  and  might  be  terminated 
sooner  by  the  government.  If  not,  all  telephone  plant  reverted 
without  charge  to  the  government  at  the  expiration  of  the  stipu- 
lated period.  Rates,  as  well  as  plans  of  construction,  should  re- 
quire the  approval  of  the  minister.  The  latter  was  also  authorized 
to  supervise  the  operation  of  concessioned  systems.  If  concessions 
should  be  acquired  by  aliens,  the  minister  was  empowered  to 
annul  them,  or  to  require  the  appointment  of  a  Hungarian  citi- 
zen as  manager.  Finally,  no  concession  for  the  establishment  of 
an  international  long-distance  line,  or  a  local  exchange  in  a  place 
of  over  10,000  inhabitants,  should  be  granted  without  a  special 
act  of  Parliament. 

The  intent  of  the  government  clearly  was  to  make  the  telephone 
monopoly  absolute  wherever  the  telephone  could  come  into  com- 
petition with  the  public  telegraphs.  The  law  made  possible  the 
establishment  of  small  undertakings  in  rural  districts  by  local 
initiative,  but  beyond  that  the  liberty  of  engaging  in  the  telephone 
1  Brault,  p.  160.  *  A.  P.  T.,  1889,  pp.  497-500. 


366  PUBLIC  OWNERSHIP  OF  TELEPHONES 

business  was  illusory.  In  1906  there  was  only  one  exchange  sys- 
tem that  was  not  owned  and  operated  by  the  government.  That 
one  was  a  rural  exchange  connecting  forty  subscribers  and  operated 
by  one  person.1  In  the  same  year,  out  of  a  total  of  102,000,000 
local  exchange  connections  in  Hungary,  43,000,000  were  in  the 
capital  city  of  Budapest.2  The  use  of  the  telephone  in  the  rural 
districts  was  comparatively  insignificant. 

V.  ITALY 

In  Italy,  in  the  beginning,  concessions  were  granted  freely. 
The  first  company  in  the  field  was  the  Societa  Generate  Italian  a 
di  Telefoni.  In  1881  it  established  exchanges  in  a  dozen  of  the 
largest  cities.  Presently,  however,  in  the  cities  which  appeared 
especially  attractive  for  telephone  operations,  competition  was 
inaugurated  by  a  number  of  local  companies.  In  Rome,  Naples, 
Florence,  Bologna,  Venice,  Genoa,  Milan,  and  Turin  the  contest 
was  keen.  Rates  were  greatly  lowered,  but  not  enough  to  bring 
a  real  gain  to  the  public,  for  in  order  to  derive  the  full  benefit  from 
the  service  they  had  to  subscribe  to  both  systems.  Hence  in  Milan, 
Turin  and  Genoa,  the  municipal  authorities  required  the  competing 
companies  to  consolidate.  Then  rates  were  raised  again.  In  other 
places  consolidations  occurred  voluntarily,  until  in  a  short  time 
only  two  companies  remained  in  all  Italy.3 

In  1883  the  central  authorities  attempted  to  introduce  order 
into  the  telephone  business  by  revising  the  concessions  and  put- 
ting them  all  on  a  uniform  basis.4  By  a  royal  decree  dated  June  i, 
the  obligations  of  the  concessionnaires  towards  the  telegraph  au- 
thorities and  towards  the  public  were  prescribed. 

The  companies  were  required  so  to  construct  their  telephone 
lines  as  to  prevent  interference  with  the  telegraphs.  If  the  govern- 
ment should  desire  to  build  a  telegraph  line  in  a  location  already 
occupied  by  the  telephone,  the  latter  must  make  way.  The  tele- 
graph authorities  reserved  the  right  to  require  the  telephone  com- 

1  J.  T.,  "Statistique  des  communications  t61ephoniques,  ann£e  1906." 

2  Volkswirtschaftliche  Mitteilungen  aus  Ungarn  zur  Orientierung  des  Auslandes. 
Herausgegeben  vom   Kgl.  Ung.  Handelsministerium,  1908,  pp.    200-235.      Art., 
"Post,  Tel.  und  Tel.  im  Jahre  1906." 

»  Lacombrade,  pp.  16-17.  4  A.  P.  T.,  1884,  pp.  375~79- 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.        367 

panics  to  make  alterations  when  they  should  deem  it  necessary 
for  the  protection  of  the  telegraph  service  at  the  companies'  own 
expense.  The  telegraph  authorities  even  stipulated  that  they  might 
make  the  alterations  themselves  at  the  companies'  expense  if  the 
latter  did  not  comply  with  their  demands  with  sufficient  alacrity. 
Competing  concessionnaires  were  required  to  grant  inter-com- 
munication between  one  another's  lines  to  their  respective  sub- 
scribers. Public  call  offices  might  not  be  erected,  nor  schedules  of 
rates  put  into  effect,  without  the  special  approval  of  the  telegraph 
authorities.  No  discrimination  in  regard  to  rates  should  be  made 
between  private  subscribers,  but  the  public  offices  and  charitable 
institutions  should  be  supplied  with  telephone  service  at  half 
the  regular  rates.  Separate  switchboards  should  be  provided 
for  the  lines  of  public  officials.  5  The  latter  might  at  any  time  in- 
spect the  companies'  books.  The  concessionnaires  were  required 
to  pay  an  annual  compensation  for  their  concessions  of  15  lire 
(nearly  $3.00)  per  private  subscriber's  station,  7  lire  per  official 
station,  and  100  lire  per  public  pay  station.  The  latter  heavy 
fee  was  avowedly  levied  in  order  to  prevent  the  telephone  from 
taking  business  away  from  the  telegraphs. 
Furthermore,  the  concessions  might  be  temporarily  suspended: 

(1)  when  and  so  long  as  the  public  telegraph  service  from  any 
cause  whatsoever  might  be  suspended;  and 

(2)  whenever  the  government  might  deem  such  suspension 
necessary  in  the  interest  of  public  order. 

The  concessions  might  be  permanently  revoked  for  a  variety  of 
causes.  One  of  these  was  failure  by  the  concessionnaire  to  discon- 
nect at  once  any  subscriber  permitting  the  use  of  his  telephone 
by  a  non-subscriber.  The  concession  was  subject  to  alteration 
or  revocation  by  any  future  legislation  without  compensation 
for  forfeiture  of  rights  granted  under  the  original  concession. 
There  was  no  grant  of  monopoly.  It  was,  however,  stipulated 
that  not  more  than  three  concessions  would  be  granted  for  any 
one  municipality,  so  long  as  the  existing  systems  were  maintained 
in  an  efficient  condition.  Unless  sooner  revoked,  concessions  were 
to  run  for  three  years,  and  then  for  an  additional  two  years,  unless 
notice  of  termination  was  given  by  the  telegraph  authorities. 


368  PUBLIC  OWNERSHIP  OF  TELEPHONES 

At  any  time  the  public  authorities  might  cancel  a  concession  and 
acquire  the  plant  of  the  concessionnaire  at  its  actual  value,  to 
be  determined,  in  case  of  dispute,  by  arbitration.  Concession- 
aires should  not  transfer  any  of  their  rights  without  the  con- 
sent of  the  government,  and  any  differences  in  regard  to  the 
interpretation  of  the  concessions  should  be  settled  by  the  govern- 
ment itself. 

These  conditions  certainly  were  not  calculated  to  encourage  the 
use  of  the  telephone.  It  is  impossible  to  suppose  that  the  Italian 
telephone  policy  was  devised  with  a  view  to  enabling  the  tele- 
graph authorities  to  avail  themselves  of  the  assistance  of  private 
enterprise  in  bearing  the  initial  risks  of  introducing  telephony  into 
/  Italy.  This  policy  was  probably  nothing  more  nor  less  than  a  de- 
liberate attempt  to  spare  the  telegraph  authorities  the  labor  of 
properly  caring  for  their  trust  by  preventing  as  far  as  possible  the 
telephone  from  coming  into  use. 

For  several  years  the  Italian  telegraph  authorities  persisted 
in  their  policy  of  throttling  the  telephone  business.  They  declined 
to  establish  inter-urban  lines,  or  to  introduce  the  telephone  into 
rural  telegraph  offices,  as  was  done  in  Germany,  as  a  supplement 
to  the  ordinary  telegraph  service.  Meanwhile  the  companies  ex- 
ploited the  urban  exchange  systems  as  only  companies  could 
whose  career  was  liable  to  be  terminated  any  day  by  the  stroke 
of  a  pen.1 

At  last  in  1888  the  Italian  telegraph  authorities  were  roused 
to  a  sense  of  their  responsibilities  toward  the  public,  and,  incited 
by  the  French  proposals  for  the  purchase  of  the  private  telephone 
exchange  systems  in  that  country,  suggested  a  similar  policy  for 
Italy.2  A  bill  to  this  effect  was  introduced  into  the  Chamber  of 
Deputies  in  the  sessions  of  1888  and  1889;  but  on  account  of  the 
ministerial  instability,  no  final  action  could  be  taken.  In  1890  the 
bill  was  introduced  for  the  third  time.  Meanwhile  the  telephone 
companies  were  forced  to  continue  under  the  oppressive  conces- 
sions of  1883. 

The  minister  in  charge  of  the  postal  and  telegraph  service  re- 

1  A.  P.  T.,  1887,  PP-  742-753.    Art.,  "Die  italienische  Telegraphenverwaltung." 
•  A.  P.  T.,  1890,  p.  317;  J.  T.,  1890,  pp.  45-46. 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.        369 

marked,  in  introducing  his  bill  into  the  Chamber  of  Deputies, 
that  the  principle  of  free  competition  had  proved  a  failure.  While 
it  endured,  it  caused  a  wasteful  duplication  of  plant.  It  would  also 
have  caused  much  inconvenience  to  the  public,  but  for  the  govern- 
ment's insistence  that  competing  companies  should  permit  inter- 
communication between  their  systems.  This  requirement,  how- 
ever, was  unfair  to  the  telephone  companies,  because  it  enabled 
the  weaker  companies  to  gain  at  the  expense  of  their  rivals.  More- 
over, competition  had  always  been  terminated  by  the  fusion  of 
the  competitors.  Finally,  the  intimate  relation  between  the  tele- 
phone and  the  telegraph  made  it  necessary  for  the  government  to 
protect  the  telegraph  revenues  by  measures  that  greatly  retarded 
the  development  of  the  telephone  service.  The  result  was  that  the 
companies  could  neither  improve  their  almost  intolerable  service, 
nor  reduce  their  exorbitant  rates.  The  companies  were  forced 
to  restrict  their  operations  to  the  most  profitable  parts  of  the  field, 
and  to  neglect  the  rest.  Since  there  must  be  a  monopoly,  the  min- 
ister argued,  and  since  the  telegraphs  were  already  in  the  hands 
of  the  public  authorities,  the  telephones  should  be  placed  there 
also.1 

The  Italian  Government,  however,  was  suffering  from  chronic 
financial  troubles,  even  more  serious  than  those  of  the  French. 
The  Chamber  shrank  from  incurring  such  heavy  financial  obli- 
gations as  were  involved  in  the  purchase  of  the  telephones.  The 
bill  was  rejected.2 

The  telephone  companies  were  forced  to  continue  the  conduct 
of  their  operations  under  the  old  repressive  conditions.  Soon, 
however,  the  Crispi  Ministry  fell,  and  in  the  session  of  1891  the 
bill  was  again  introduced.  The  telegraph  authorities  can  certainly 
not  be  accused  of  ignorance  of  the  urgency  for  a  change  in  their 
policy  toward  the  telephones.  Once  more,  however,  ministerial  in- 
stability and  fiscal  troubles  caused  the  postponement  of  a  change. 

Finally,  in  1892,  in  deference  to  the  reluctance  of  the  Italian 
Parliament  to  incur  additional  financial  liabilities,  the  telegraph 

1  Lacava,  Minister  of  Posts  and  Telegraphs;  speech  printed  in  full  in  the  Giornale 
dclle  Communicazioni,  Feb.,  1890. 
1  J.  T.t  1890,  p.  107. 


370  PUBLIC  OWNERSHIP  OF  TELEPHONES 

authorities  modified  their  proposal.  Although  retaining  the  prin- 
ciple of  a  public  monopoly  of  the  telephone,  and  adhering  to  the 
belief  that  ultimately  the  government  would  have  to  undertake 
the  management  of  the  business  itself,  they  conceded  that  for  the 
present  the  government  should  not  exercise  its  monopoly.  De- 
finite concessions  should  be  granted  for  twenty-five  years,  with 
the  reservation  of  the  right  of  purchase  after  twelve  years.  In 
case  this  right  should  be  exercised,  the  purchase  price  should  be 
determined,  in  default  of  mutual  agreement,  by  arbitration,  and 
should  not  exceed  the  product  of  the  average  net  income  of  the 
system  to  be  purchased,  multiplied  by  the  number  of  years  the 
concession  should  still  have  to  run.  At  the  end  of  twenty-five 
years  the  entire  plant  of  the  concessionnaire  should  revert  to  the 
government  without  payment.  The  concession  should  carry  with 
it  no  grant  of  monopoly,  but  in  most  other  respects  the  bill  of  1892 
provided  a  generous  relaxation  of  the  conditions  of  the  concessions 
of  1883.  In  one  respect  only  were  the  conditions  still  excessively 
onerous.  Long-distance  lines  might  be  built  by  the  telegraph  au- 
thorities, or  by  concessionnaires.  In  the  former  case  the  telegraph 
authorities  would  require  a  guarantee  from  the  concessionnaires 
of  the  exchanges  to  be  connected  by  the  line  that  the  receipts 
would  be  equal  to  at  least  one-half  of  the  sum  received  on  the  tele- 
graph line  connecting  the  same  terminals.  In  the  latter  case  the 
concessionnaire  would  be  required  to  make  good  to  the  telegraph 
authorities  any  losses  that  might  ensue  on  a  parallel  telegraph  line. 
The  bill  became  law  on  April  17,  1892.! 

The  effect  of  the  imposition  of  these  conditions,  intended  to 
protect  the  telegraph  revenues,  was  that  after  ten  years  there 
were  only  thirty-four  private  and  three  governmental  long-distance 
telephone  lines  in  all  Italy.  This  restriction  of  inter-urban  tele- 
phony, combined  with  the  direct  restrictions  on  local  exchange 
operation,  which  even  after  the  relaxation  of  the  terms  of  the 
original  concessions  by  the  law  of  1892  were  sufficiently  severe, 
had  greatly  hindered  the  development  also  of  urban  telephony. 
Italy  fell  behind  the  other  nations  of  Western  Europe  in  the  use 
of  the  telephone. 

1  A.  P.  T.,  1893,  pp.  10-17. 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.        371 

Consequently,  in  1903,  fresh  legislation  was  enacted  in  order 
to  encourage  the  laggard  industry.1  Two  unsuccessful  attempts 
to  secure  legislation  had  already  been  made  with  a  similar  intent, 
but  at  last  the  chambers  were  won  over  to  the  views  of  the  tele- 
graph authorities,  and  consented  to  assume  some  financial  obli- 
gations in  order  to  help  the  suffering  telephone  industry  to  its  feet. 
February  15,  1903,  a  law  received  the  royal  assent,  sanctioning 
the  ultimate  expenditure  of  a  trifle  over  six  million  lire  (about 
a  million  and  a  quarter  dollars),  with  which  the  telegraph  admin- 
istration was  to  connect  all  the  important  provincial  cities  by 
long-distance  telephone  within  four  years  by  the  construction  of 
eighty-four  lines.  Thereafter  it  would  undertake  to  connect  any 
two  cities,  in  which  there  were  local  exchanges  in  operation, 
serving  each  as  many  subscribers  as  there  might  be  intervening 
kilometers  between  the  two  cities.  The  telegraph  authorities 
might,  furthermore,  waive  their  claim  for  compensation  for  loss 
occasioned  to  their  telegraph  receipts  by  the  construction  of  pri- 
vate long-distance  telephone  lines,  on  consideration  of  the  payment 
by  the  concessionaire  of  20  %  of  the  gross  receipts  from  such 
lines. 

In  addition  to  giving  this  impetus  to  the  construction  of  long- 
distance lines,  the  act  of  1903  attempted  also  to  put  new  life  into 
the  local  exchange  business.  The  telegraph  administration  was 
authorized  to  establish  local  exchanges  of  its  own,  or  to  institute 
competition  where  it  deemed  it  necessary  in  order  to  compel  an 
existing  company  to  improve  its  service,  and  to  permit  munici- 
palities to  exercise  the  government's  right  of  purchase  after  twelve 
years,  provided  the  government  itself  should  not  choose  to  make 
use  of  that  right.  The  former  provision  was  inserted  for  effect 
only,  but  the  latter  was  meant  to  be  used.  The  intention  was  ul- 
timately to  bring  about  a  composite  state  of  public  ownership, 
like  that  in  Holland,  and  like  that  intended  to  be  brought  about 
in  England  by  the  act  of  1899,  with  the  long-distance  lines  in  the 
hands  of  the  telegraph  authorities,  and  the  local  exchanges  in  the 
hands  of  the  municipalities. 

There  were  grounds  for  believing  that  this  result  might  be  ac- 

»  A.  P.  T.,  1903,  pp.  345-350. 


372  PUBLIC  OWNERSHIP  OF  TELEPHONES 

complished.  The  opening  of  the  twentieth  century  witnessed  the 
growth  of  a  strong  feeling  in  favor  of  municipal  ownership  in 
Italy,  especially  in  the  cities  of  the  north.  In  this  same  year,  1903, 
a  law  was  enacted,  intended  to  encourage  this  sentiment,  which 
specified  the  telephone  as  a  fit  subject  for  municipal  ownership. 
In  the  five  years  following  the  passage  of  that  law,  the  number  of 
municipal  business  undertakings  was  increased  from  thirty-one 
to  seventy-four.  Among  others,  the  number  of  municipal  gas 
plants  increased  from  fifteen  to  nineteen,  the  number  of  electric- 
lighting  works  from  eight  to  twenty-three,  and  four  street-railway 
undertakings  were  established.  But  only  one  municipality  went 
into  the  telephone  business.1  The  policy  of  municipal  ownership 
of  telephones  failed. 

The  causes  were  various.  The  chief  one  was,  perhaps,  that  pub- 
lic opinion  generally  believed  the  telephone  to  be  a  business  that 
ought  to  be  undertaken  by  the  telegraph  authorities.  That  cer- 
tainly had  long  been  the  opinion  of  the  telegraph  authorities  them- 
selves. In  1906  the  Italian  Minister  of  Posts  and  Telegraphs  at 
last  proposed  once  more  that  this  should  be  done  immediately.2 
In  order  to  avoid  laying  a  too  heavy  strain  on  Italian  finances, 
he  proposed  that  payment  be  made  by  means  of  annuities,  and 
that  the  cost  of  maintenance  and  extensions  be  defrayed  from 
current  operating  receipts.  This  plan  did  not  augur  well  for  an 
energetic  policy  in  the  public  management  of  the  telephone  busi- 
ness, but  it  suited  the  taste  of  the  Italian  Parliament.  In  1907  a 
bill  was  introduced  providing  for  the  purchase  of  the  twenty- 
seven  exchange  systems  and  eighteen  long-distance  lines  then 
operated  by  the  two  leading  Italian  telephone  companies.  The 
price  should  be  paid  in  eleven  annual  installments  out  of  the  ex- 
pected future  profits  of  the  public  telephone  service.  July  15, 1907, 
this  bill  became  law.3 

Private  ownership  of  telephones  endured  longer  in  Italy  than 
in  any  of  the  other  countries  that  have  yet  been  considered.  The 

1  Annuario  Statistico  dette  Cittd  Italians  ;  Anno  II,  1908,  p.  282. 

*  J.  T.,  1906,  p.  146. 

1  E.  T.  Z.,  1907,  p.  818.  The  proposed  organization  of  the  Italian  telephone 
service  closely  resembles  the  existing  organization  of  the  French.  Cf.  A.  P.  T., 
1908,  pp.  92-98,  Art.,  "Die  Verstaatlichung  des  Fernsprechwesens  in  Italien." 


PRIVATE  UNDERTAKINGS  IN  BELGIUM,  ETC.        373 

Italians  were  especially  reluctant  to  sanction  the  undertaking  of 
a  business  enterprise  of  such  magnitude  by  their  telegraph  au- 
thorities. Nevertheless,  they  too  had  to  yield  ultimately  to  the 
pressure  of  circumstances. 

The  causes  that  eventually  led  to  a  resumption  of  the  telephone 
business  by  the  government  in  these  countries  were  complex. 
The  details  of  the  arrangements  with  private  enterprise  were  va- 
rious. Some  telegraph  authorities  displayed  more  wisdom  and 
breadth  of  view  than  others.  Some  legislative  bodies  proved  quicker 
to  learn  the  lessons  of  experience,  or  were  less  hampered  in  their 
action  by  political  instability  or  financial  stress.  But  underlying 
all  the  diverse  arguments  and  local  events  that  led  to  public 
ownership  in  these  countries,  one  circumstance  was  decisive.  That 
was  the  ownership  of  the  telegraphs  by  the  government.  No  coun- 
try was  able  to  retain  the  possession  of  its  telegraph  system,  and 
at  the  same  time  leave  the  telephone  in  alien  hands.  The  conflict 
of  interest  was  too  sharp.  No  country  cared  to  abandon  its  tele- 
graphs. Therefore  it  was  compelled  to  acquire  the  telephone. 

The  failure  of  free  competition  to  give  the  public  a  cheap  and 
efficient  service,  the  difficulty  of  so  regulating  a  private  monopoly 
as  to  accomplish  the  same  end,  the  political  and  economic  advan- 
tages of  the  direct  control  of  monopolies  of  great  public  import- 
ance by  the  state,  the  economy  of  the  joint  operation  of  the  tele- 
graph and  the  telephone  by  one  central  management,  all  these 
reasons  for  public  ownership  were  pointed  out  with  more  or  less 
sincerity.  But  the  conclusive  reason  was  that  the  telegraphs  were 
already  in  the  hands  of  the  government,  and  the  nature  of  the 
telephone  made  any  permanently  satisfactory  arrangement  for 
leaving  it  in  private  hands  impossible.  Whether  the  telegraph  au- 
thorities seriously  endeavored  to  utilize  private  enterprise  in  over- 
coming initial  difficulties,  or  merely  employed  it  as  a  cloak  to  hide 
their  own  lack  of  enterprise,  the  result  was  the  same.  When  the 
former  motive  was  dominant,  the  relations  with  private  enter- 
prise proved  somewhat  more  satisfactory  to  the  public  than  when 
the  latter  motive  prevailed.  In  either  event,  the  public  authori- 
ties could  not  avoid  the  ultimate  responsibility  for  the  conduct 
of  the  telephone  business. 


CHAPTER  XXI 

PRIVATE  OWNERSHIP  OF  TELEPHONES  IN  NORWAY,   SWEDEN, 
DENMARK,   AND   SPAIN 

I.  NORWAY1 

THE  first  telephone  instruments  were  brought  into  Scandinavia 
by  the  International  Bell  Telephone  Company  of  New  York,  in 
1880.  In  the  same  year  local  franchises  were  secured  from  the 
municipal  authorities  in  the  Norwegian  cities  of  Christiania  and 
Drammen.  These  two  cities  were  the  only  ones  in  Norway  in 
which  the  Bell  interests  ever  established  exchanges. 

In  1 88 1  the  task  of  extending  the  telephone  service  to  other 
cities  was  taken  up  by  independent  telephone  companies  and  as- 
sociations, and  a  second  exchange  system  was  even  established 
in  the  Norwegian  capital,  Christiania,  expressly  to  compete  with 
the  existing  Bell  system.  The  rival  undertakings  maintained  a 
vigorous  competition  for  several  years.  The  public  in  Christiania, 
as  in  Brussels  and  a  number  of  the  Italian  cities,  quickly  reached 
the  conclusion  that  competition  was  more  to  its  detriment  than 
to  its  advantage.  Many  subscribers  found  themselves  compelled  to 
join  both  systems,  and  thus  lost  the  benefit  of  the  cut  rates  which 
the  competition  produced.  At  the  same  time  the  confusion  of  lines, 
caused  by  overhasty  construction,  and  the  numerous  short  cir- 
cui tings  which  resulted,  soon  brought  about  an  intolerable  state 
of  affairs.  In  1885  the  municipality  could  endure  competition  no 
longer,  and  requested  the  rivals  to  combine,  or  at  least  to  come  to 
terms  with  one  another.  Unless  future  construction  were  planned 
with  a  greater  regard  for  the  interests  of  the  municipality,  the 
municipal  authorities  threatened  to  refuse  the  further  grant  of 
rights  of  way  over  the  city  streets.  This  threat  fell  on  receptive 
ears,  and  in  1886  the  fusion  was  consummated.  The  municipal 

1  Tarifs  til.,  vol.  i,  pp.  200-233.  Art.,  "Norvfcge."  This  article  is  based  on  the 
Report  of  the  Royal  Commission  appointed  Dec.  7,  1892,  to  draw  up  a  plan  for  regu- 
lating the  relations  between  the  private  telephones  and  the  state. 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  375 

authorities  themselves  acquired  an  interest  in  the  new  company, 
and  the  further  development  of  the  Christiania  exchange  system 
proceeded  much  more  to  the  general  satisfaction. 

In  Drammen,  the  only  city  outside  of  Christiania  in  which  the 
Bell  interests  established  an  exchange,  the  business  remained  in 
their  hands  until  1889.  Then  it  was  disposed  of  to  a  local  stock 
company.  The  proposal  in  1880  to  connect  Drammen  and  Chris- 
tiania by  a  long-distance  line  first  led  the  Norwegian  government 
to  take  a  hand  in  telephone  affairs. 

The  public  authorities  feared  that  the  unrestricted  establish- 
ment of  long-distance  lines  between  cities  already  connected  by 
the  state  telegraph  system  would  seriously  prejudice  the  telegraph 
revenues.  At  that  time  the  government  was  operating  all  the 
telegraphs  in  Norway,  but  without  any  exclusive  right.  Accord- 
ingly at  the  end  of  the  same  year  (1880)  a  bill  was  introduced  into 
Parliament  to  reserve  to  the  government  the  monopoly  of  the 
transmission  of  messages  by  telegraph,  telephone,  or  any  other 
electrical  or  mechanical  means  whatsoever.  This  bill  became  law 
on  May  19,  1881.  Provision  was  also  made  in  this  law  for  grant- 
ing concessions  under  certain  conditions  to  private  persons  for 
the  establishment  of  telephone  systems.  As  a  result  of  the  law, 
however,  the  project  for  a  long-distance  line  between  Chris- 
tiania and  Drammen  was  abandoned.  The  company,  indeed, 
requested  a  special  license  authorizing  it  to  establish  such  a  line. 
The  telegraph  authorities  replied  that  a  license  would  be  granted 
on  condition  that  the  company  guarantee  to  make  good  to  the 
government  all  losses  occasioned  to  its  telegraph  business  between 
the  two  cities  by  the  installation  of  the  telephone.  The  company 
did  not  feel  able  to  accept  that  condition,  and  the  line  was  not 
built. 

The  local  authorities  at  Drammen  aided  in  bringing  about  this 
result  by  failing  to  support  the  Bell  Company  in  its  application 
for  a  license.  They  dreaded  lest  the  improvement  of  the  means  of 
communication  with  the  capital  would  injure  local  business.  Be- 
tween the  departmental  jealousy  of  the  telegraph  administration 
and  the  local  jealousy  of  the  city  fathers  of  Drammen,  the  pros- 
pects of  the  Bell's  long-distance  telephone  business  were  not  bright. 


376  PUBLIC  OWNERSHIP  OF  TELEPHONES 

This  first  experience  under  their  new  law  caused  the  telegraph 
authorities  to  consider  whether  they  were  not  doing  wrong  in  de- 
clining to  undertake  the  telephone  business  themselves.  How- 
ever, the  uncertainty  of  the  business,  and  the  general  dissimilarity 
in  the  applications  of  telegraph  and  telephone,  and  especially  the 
inconvenience  of  procuring  the  supplies  of  capital  which  would  be 
required  in  order  properly  to  develop  the  infant  industry,  led  the 
director  of  the  state  telegraphs  to  adhere  to  his  original  decision 
to  leave  the  telephones  to  private  enterprise.  So  long  as  ade- 
quate safeguards  were  erected  for  the  protection  of  the  telegraphs 
at  the  one  point  where  the  two  services  came  into  conflict,  there 
was  no  need  to  fear  any  ill  effects  from  a  policy  of  private  owner- 
ship of  telephones.  That  he  could  erect  adequate  safeguards,  now 
that  his  position  was  fortified  by  the  grant  of  monopoly,  was  un- 
questionable. 

Meanwhile  the  use  of  the  telephone  was  increasing.  Com- 
panies which  had  confined  their  operations  in  the  beginning  to  the 
interiors  of  the  cities,  began  to  spread  out  their  lines  into  the 
country.  At  first  the  telegraph  administration  sought  to  restrain 
the  concessions  within  prescribed  limits,  usually  within  eleven 
kilometers  of  the  center  of  the  city.  The  restriction  had  the  two- 
fold object  of  assuring  a  rational  conformation  of  exchange  sys- 
tems and  of  preventing  them  from  coming  in  contact  with  one  an- 
other, for  the  latter  event  meant  ultimate  competition  with  the 
state  telegraphs.  The  administration  made  it  a  rule  not  to  permit 
the  telephone  systems  in  two  neighboring  communities  to  come 
within  two  kilometers  of  one  another.  But  in  Norway  such  action 
on  the  part  of  the  telegraph  administration  was  futile.  The  tele- 
phone filled  a  big  void  in  the  semi-isolated  lives  of  the  sparsely 
settled  Norwegian  population.  The  telegraph  administration 
found  it  impossible  to  maintain  its  restrictions  in  their  original 
severity.  But  as  they  were  gradually  relaxed,  the  telegraph  revenues 
were  found  once  more  to  be  seriously  threatened. 

Consequently,  the  principle  of  the  isolation  of  each  exchange  sys- 
tem was  modified,  but  not  wholly  abandoned.  The  telegraph  ad- 
ministration consented  to  permit  the  connection  of  adjacent  tele- 
phone systems  by  long-distance  lines,  provided  that  the  same  two 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  377 

communities  were  not  already  connected  by  telegraph.  Even  this 
restriction  was  eventually  broken  down.  The  first  inter-urban 
telephone  line  actually  to  parallel  a  telegraph  was  constructed 
in  1885,  four  years  after  the  failure  of  the  Bell  Telephone  Com- 
pany's project.  The  promoters  of  this  line  were  required  to  pay 
a  special  fee  of  $125  a  year  in  order  to  recompense  the  telegraph 
administration  for  its  prospective  losses.  Thereafter  the  govern- 
ment pursued  the  policy  of  exacting  compensatory  guarantees  from 
all  promoters  of  competing  long-distance  lines.  These  fees  usu- 
ally were  fixed  at  a  third  to  a  half  of  the  receipts  previously  re- 
ceived from  the  telegraph  service.  Often  the  actual  losses  were 
greater  than  that.  This  policy  was  defended  on  the  ground  that, 
as  the  state  had  established  many  telegraph  offices  which  did  not 
pay  their  expenses,  solely  in  the  interest  of  the  communities  which 
made  use  of  the  service,  it  was  only  fair  that  the  latter  should  now 
help  bear  the  loss  that  was  caused  by  the  introduction  of  the  tele- 
phone. Experience  showed  that  these  losses  were  considerable. 
The  people  of  the  kingdom,  who  really  owned  the  telegraphs,  would 
have  to  bear  them  in  one  way  or  another.  There  was  no  juster 
way  of  apportioning  them  than  by  assessing  them,  at  least  par- 
tially,, upon  the  communities  which  caused  them  by  making  use 
of  the  rival  service. 

About  this  time  the  telegraph  administration  began  to  make 
use  of  the  telephone  in  its  own  telegraph  service.  This  applica- 
tion of  the  telephone  was  for  the  purpose  of  establishing  cheap 
communication  between  the  general  telegraph  system  and  iso- 
lated fishing  villages.  The  villagers  supplied  the  heat  and  lighting 
for  their  office  and  kept  an  attendant  on  hand.  By  this  means 
telephone  connections  could  be  maintained  the  year  round  with 
small  villages  which  before  had  been  able  to  support  a  telegraph 
service  only  during  the  height  of  the  fishing  season.  This  use  of  the 
telephone  came  to  be  more  and  more  popular  in  the  smaller 
communities  which  had  previously  been  altogether  without  tele- 
graph service,  and  the  further  extension  of  the  telegraphs  was  ac- 
cordingly checked.  Sometimes  the  telegraph  administration  even 
suppressed  a  more  unprofitable  telegraph  office  and  converted  it 
into  a  public  call  office  in  connection  with  the  nearest  telephone 


378  PUBLIC  OWNERSHIP  OF  TELEPHONES 

exchange  system.  Finally  long  party  lines  were  built  to  connect 
a  series  of  detached  forest  or  fishing  villages  by  telephone  instead 
of  by  the  more  costly  telegraph.  The  first  of  these,  built  in  1888, 
was  about  seventy  miles  in  length  and  joined  eight  stations  to 
the  general  telegraph  system  of  the  kingdom. 

Meanwhile  the  extension  of  exchange  systems  into  the  rural 
villages  went  on  apace.  Exchange  lines  were  also  built  out  into  the 
open  country.  The  regions  between  the  villages  in  many  parts  of 
Scandinavia,  unlike  the  plattes  Land  in  Germany,  do  not  consist 
solely  of  uninhabited  plough-land,  meadows  and  woods,  but,  on 
the  contrary,  are  dotted  here  and  there  with  solitary  cottages. 
On  the  other  hand,  the  villages  are  much  farther  apart.  Rural 
life  has  more  in  common  with  that  of  the  American  North  and 
West  than  with  that  of  the  German  Dorf.  These  scattered  homes 
were  filled  with  a  homogeneous  race  of  people,  attached  to  one 
another  by  strong  ties  of  fellow-feeling,  and  ready  to  make  con- 
siderable sacrifices  in  order  to  improve  their  facilities  for  social 
intercourse.  The  Norwegian  people,  despite  their  monarchical 
form  of  government,  more  nearly  attain  the  democratic  ideals  of 
equality  and  fraternity  than  any  other  people  in  Europe.  To 
many  a  rural  family,  dwelling  far  from  its  nearest  neighbors,  and 
shut  in  by  the  inclemency  of  the  weather  during  a  part  of  the  year, 
the  telephone  was  a  godsend.  A  decade  after  the  first  introduc- 
tion of  the  telephone,  there  existed  scarcely  a  village  in  Nor- 
way, no  matter  how  small,  which  was  not  only  itself  provided  with 
a  telephone  system,  but  served  as  a  center  for  long  lines  radiating 
deep  into  the  surrounding  country.1 

This  rapid  development  was  not  secured  through  the  agency 
of  telephone  companies  of  the  sort  to  which  the  French  and  Italian 
telegraph  authorities  had  intrusted  the  initial  work  of  telephone 
development  in  France  and  Italy.  The  Bell  company,  which  first 
brought  the  telephone  into  Norway,  did  not  build  up  a  monopoly 
of  the  business  in  the  important  centers  to  the  neglect  of  the  rest 
of  the  country,  as  was  policy  in  the  South.  On  the  contrary,  be- 
fore the  end  of  the  first  decade,  it  abandoned  the  few  exchanges 

1  A.  P.  T.,  1891,  pp.  467  ff.,  and  538  ff.  Art., " Das  Fernsprechwesen  und  die  Fern- 
sprechtarife  in  Danemark,  Schweden,  und  Norwegen." 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  379 

which  it  had  been  able  to  establish  at  the  beginning.  It  found  the 
soil  unfavorable  to  the  growth  of  a  huge  monopolistic  enterprise 
of  the  sort  its  differently  situated  French  and  Italian  prototypes 
had  created.  In  Norway,  not  central,  but  local  enterprise  was  the 
source  of  energy  behind  the  astonishing  expansion  of  the  telephone 
business. 

In  each  town  and  village,  the  leading  citizens  joined  together 
and  took  the  responsibility  for  the  local  development  of  the  tele- 
phone service  into  their  own  hands.  They  formed  small  joint 
stock  companies  in  which  each  prospective  telephone  subscriber 
in  the  community  possessed  at  least  a  share,  or  mutual  associa- 
tions which  assumed  the  initial  expenses  of  construction,  and  raised 
the  needed  capital  by  assessments  upon  the  members,  or  pure 
cooperative  societies  in  which  each  member  bought  his  own  line, 
material  and  instrument,  and  shared  with  his  fellows  the  labor 
of  building  the  central  office.  Occasionally  the  village  authorities 
themselves  took  the  matter  into  their  official  hands,  and  built  a 
village  exchange  system  at  public  expense.  The  universal  con- 
viction that  the  establishment  of  telephone  exchange  systems  was 
an  undertaking  for  the  common  good  of  all  the  people  led  to  every 
manner  of  aid  and  support  of  such  undertakings.  Rights  of  way 
were  furnished  free  of  charge,  poles  and  similar  material  were 
supplied  at  cost,  and  the  members  of  each  community  gladly 
volunteered  their  services  in  the  cause  of  universal  communica- 
tion by  telephone.  The  business  management  of  the  mutual  and 
cooperative  systems  was  placed  in  the  hands  of  committees, 
chosen  by  the  members,  which  served  without  payment.  The  di- 
rectors of  the  local  stock  companies  often  did  likewise.  After  the 
initial  capital  had  been  raised  by  popular  subscriptions  and  spe- 
cial assessments,  each  member  of  an  exchange  system  paid  an 
annual  contribution  toward  operating  expenses  and  maintenance, 
usually  fixed  according  to  the  use  which  he  was  presumably  mak- 
ing of  the  service.  Extraordinary  expenses,  caused  by  disasters 
or  otherwise,  were  covered  by  special  assessments,  determined 
chiefly  by  the  members'  ability  to  pay.  No  pains  were  spared 
to  render  the  operation  and  maintenance  as  cheap  as  possible. 
No  money  was  spent  where  the  services  of  the  telephone  users 


380  PUBLIC  OWNERSHIP  OF  TELEPHONES 

could  be  utilized  instead.1  Thus,  in  one  way  or  another,  these 
local  telephone  systems  sprang  up  throughout  Norway  during 
the  latter  part  of  the  first  decade  after  the  introduction  of  the 
telephone,  and  quickly  covered  the  country  with  a  network  of 
lines. 

Each  local  management  devised  for  itself  its  own  plan  of  con- 
struction and  framed  its  own  conditions  of  operation.  Legislation 
put  no  technical  restrictions  in  the  way  of  the  construction  of  lines 
and  the  stringing  of  wires.2  The  result  of  this  freedom  of  local 
initiative  was  that  scarcely  any  two  systems  were  alike.  The  gen- 
eral hurry  to  secure  telephone  service  caused  the  work  to  be  carried 
out  with  a  total  disregard  of  any  general  rules  of  telephone  prac- 
tice. The  standard  of  construction  was  often  too  low,  materials 
too  cheap,  and  work  too  hasty.  The  audibility  of  even  the  local 
lines  was  bad,  and  the  service  of  the  exchanges  inadequate.  These 
conditions  were  worse  on  the  longer  lines.3  Hence,  when  the  devel- 
opment of  the  local  service  reached  the  stage  where  further  pro- 
gress lay  in  the  construction  of  toll-lines  in  order  to  secure  inter- 
communication between  the  neighboring  village  services,  the  lack 
of  coordination  became  a  serious  impediment.  The  diverse  local 
systems  could  not  easily  be  adjusted  to  the  uniform  and  more 
exacting  technical  requirements  of  a  long-distance  system.  The 
long-distance  lines  were  unworkable  unless  composed  throughout 
of  metallic  circuits,  and  much  inconvenience  was  caused  by  the 
difficulty  of  operating  lines  built  partly  of  metallic  circuits  and 
partly  of  earlier  and  less  expensive  single-wire  circuits  with  earth 
return.  For  a  considerable  period  these  technical  difficulties, 
combined  with  the  hostile  attitude  of  the  telegraph  administra- 
tion, retarded  the  construction  of  inter-urban  connections. 

The  need  for  central  supervision  and  coordination  became 
greater  and  greater  as  the  local  systems  expanded  more  and  more 
widely  over  the  country.  Not  until  after  1890  did  the  local  au- 
thorities succeed  in  cooperating  with  one  another  sufficiently  to 
undertake  the  task  of  welding  the  heterogeneous  local  systems  into 

1  H.  Schwaighofer:  Die  Grundlagen  der  Preisbildung  im  elektrischen  Nachrickten- 
lerkehr;  Munchen,  1902,  p.  68. 

2  Ibid.,  p.  69.  *  Schwaighofer,  p.  70. 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  381 

one  homogeneous  national  system.  Clearly  this  work  could  not 
be  executed  on  any  considerable  scale  without  the  active  coopera- 
tion and  leadership  of  the  telegraph  authorities  themselves. 
With  the  completion  of  the  initial  task  of  local  construction,  the 
policy  of  local  initiative  had  accomplished  its  best  work.  The  early 
telephone  enterprises  were  admirably  adapted  to  the  peculiar  needs 
of  the  country  at  that  stage  of  the  development  of  the  telephone 
business.  Further  progress  was  dependent  on  the  substitution  of 
centralized  for  localized  initiative.  The  Norwegian  telephone  sys- 
tem required  to  be  organized  on  a  larger  scale.  That  was  the  situa- 
tion which  confronted  the  royal  commission  appointed  in  1892. 

The  time  had  come  when  the  telegraph  authorities  could  pro- 
mote the  broadest  public  welfare  by  abandoning  their  original 
policy  of  restricting  the  long-distance  telephone  business.  The 
telegraph  authorities  themselves  might  lose  thereby  a  portion  of 
their  telegraph  revenues,  but  to  the  public  it  was  a  matter  of  less 
concern.  The  telephone  in  Norway  was  not  a  luxury  confined  to  the 
commercial  classes  and  wealthy  few,  as  in  most  parts  of  Europe, 
but  a  universal  indulgence  of  all  classes.  What  the  common  citi- 
zens would  lose  in  their  capacity  of  taxpayers  and  owners  of  the 
governmental  telegraphs,  they  would  gain  in  their  capacity  of  users 
of  the  telephone.  The  depreciation  of  the  public  investment  in 
the  telegraphs  would  be  more  than  counterbalanced  by  the  in- 
creased utility  of  communication  by  telephone.  It  was  merely  a 
question  of  putting  into  one  pocket  what  came  out  of  the  other. 
Since  the  public  obviously  preferred  to  use  the  telephone,  the  tele- 
graph authorities  should  have  taken  the  service  at  once  into  their 
own  hands,  and  made  the  public  pay  the  bill  to  themselves  di- 
rectly instead  of  through  the  medium  of  vexatious  guarantees 
exacted  from  private  companies.  So  long  as  the  nation  itself  owned 
the  telegraphs  it  was  compelled  itself  to  bear  the  loss  caused  by 
the  improvement  of  the  means  of  communication.  There  was  no 
way  by  which  the  loss  could  be  shifted  to  the  shoulders  of  any  one 
special  class  in  the  community.  Had  the  telegraphs  been  exploited 
by  private  capitalists,  there  would  have  been  at  least  a  chance  of 
putting  the  burden  on  them.  As  matters  actually  stood,  to  leave 
the  future  construction  of  long-distance  lines  to  private  capital- 


382  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ists  simply  enabled  them  to  put  into  their  own  pockets  at  least 
a  portion  of  the  future  losses  of  the  telegraph  administration. 
Yet  that  is  what  the  telegraph  authorities  decided  to  do. 
*  Since  1892  the  construction  of  long-distance  telephone  lines  has 
been  undertaken  by  big  stock  companies.  To  be  sure,  much  of 
the  stock  is  held  by  the  same  interests  which  had  previously  built 
up  the  local  exchange  systems.1  But  that  is,  after  all,  an  unsatis- 
factory makeshift.  Moreover,  the  telegraph  authorities  could 
not  make  up  their  minds  definitely  to  keep  out  of  the  telephone 
business.  They  have  dallied  with  the  idea,  and  have  bought  a  good 
many  of  the  more  important  exchange  systems  as  their  concessions 
expire.  This  has  required  them  to  take  a  corresponding  portion 
of  the  long-distance  business  into  their  own  hands.  In  1906  both 
the  local  and  the  long-distance  business  was  about  evenly  di- 
vided between  the  government  and  the  companies.  On  the  whole, 
the  government  dominates  the  situation  in  the  larger  cities,  and 
the  companies  in  the  more  sparsely  settled  rural  districts.2  This 
division  of  responsibility  cannot  form  a  basis  for  permanently 
satisfactory  conditions  in  telephone  administration.  There  is  little 
doubt  that  ultimately  the  entire  business  will  find  its  way  into 
the  hands  of  the  state. 

n.  SWEDEN 

In  Sweden,  the  general  course  of  development  has  been  the 
same  as  in  Norway,  but  some  of  the  details  have  been  strikingly 
different.  In  particular,  the  long-sustained  and  sharply-con- 
tested competition  in  the  city  of  Stockholm  has  aroused  interest 
among  advocates  and  opponents  of  the  policy  of  telephone  compe- 
tition. In  Sweden,  as  in  Norway,  the  government  had  no  legal 
monopoly  of  the  telegraph  business  at  the  time  of  the  invention  of 
the  telephone.  The  government  in  fact  conducted  the  entire  tele- 
graph business  of  the  country  except  for  the  lines  employed  by 
the  private  railroads  for  signal  purposes.  But  at  the  time  when  the 
telephone  was  introduced,  it  declined  to  undertake  the  new  ven- 
ture and  left  the  field  clear  for  private  enterprises. 

1  Schwaighofer,  p.  70. 

1  J.  T.,  Statistique  g6n6rale  de  la  T616phonie.    Ann6e  1906. 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  383 

In  1 88 1  the  International  Bell  Telephone  Company  established 
exchange  systems  in  Stockholm,  Gothenberg,  and  Malmo.1  De- 
velopment was  not  rapid  until  1883.  Then  mutual  telephone  as- 
sociations began  to  spring  into  existence  in  rural  Sweden,  and  com- 
petition was  inaugurated  in  Stockholm  itself.  The  Stockholm 
Almdnna  Telefonaktiebolaget,  or  General  Telephone  Company, 
was  organized  by  some  capable  and  enterprising  Swedish  engi- 
neers, who  entered  with  zest  into  a  struggle  with  the  Bell.2  For 
a  few  years  the  contest  was  waged  on  even  terms.  Then  the  su- 
perior business  management  of  the  Swedish  concern  proved  too 
much  for  its  older  rival.  After  1885  the  number  of  subscribers  to 
the  Bell  system  began  to  dwindle.  In  1890  a  controlling  interest 
in  its  affairs  was  acquired  by  the  General  Telephone  Company, 
and  in  1892  the  latter  openly  transformed  the  Bell  system  into  a 
branch  of  its  own,  and  assigned  to  it  the  business  of  one  section 
of  the  city.  Thus  terminated  the  telephone  competition  in  Stock- 
holm as  far  as  private  enterprise  was  concerned. 

Meanwhile  the  unrestrained  operation  of  public-spirited  local 
enterprise  in  the  rural  districts  had  produced  a  marvelously  wide- 
spread use  of  the  telephone.  Before  the  end  of  the  decade,  the 
isolated  village  systems  of  the  small  local  stock  companies,  mutual 
telephone  associations,  and  cooperative  societies,  were  beginning 
to  spread  out  their  branches  towards  one  another.  The  branches 
quickly  met,  and  inter-urban  telephony  was  established.  Long 
before  this  the  government  had  tried  its  hand  at  the  telephone 
business  in  a  small  way.  In  1882  it  established  a  small  exchange 
in  Stockholm  in  order  to  connect  the  government  offices,  and  in 
the  following  years  it  had  acquired  several  exchange  systems  in 
connection  with  the  extension  of  its  telegraphs  among  the  fishing 
population  in  the  South.  These  enterprises  caused  it  to  build  a 
few  long-distance  lines  in  that  region  on  its  own  account,  but  no 
work  of  considerable  magnitude  was  attempted  until  1889. 

In  that  year  the  General  Telephone  Company,  which  had  for 
some  time  been  extending  its  lines  beyond  the  municipal  area  of 
Stockholm,  applied  for  the  concession  of  rights  of  way  in  order 

1  Brault,  p.  231. 

8  Gustave  Sundb&rg:  La  Suldc.    Stockholm,  1900.    Vol.  ii,  pp.  457-462. 


384  PUBLIC  OWNERSHIP  OF  TELEPHONES 

to  build  long-distance  lines  across  the  southern  part  of  Sweden, 
from  Stockholm  to  Gothenberg  and  Malmo.  This  proposal  caused 
the  government  to  take  a  new  interest  in  the  telephone  business. 
For  some  time  the  telegraph  administration  had  been  watching 
with  jealous  eyes  the  continued  spread  of  the  inter-urban  telephone. 
Now  it  saw  that  the  time  had  come  for  it  to  act,  if  it  would  preserve 
its  control  of  the  transmission  of  intelligence  among  the  Swedish 
cities. 

The  government  met  the  issue  squarely.  It  made  no  attempt 
to  protect  its  telegraph  revenues  by  preventing  the  too  rapid 
growth  of  the  long-distance  telephone.  On  the  contrary,  it  imme- 
diately reduced  its  telegraph  rates.  But  it  did  not  stop  there.  It 
assumed  directly  the  whole  responsibility  for  the  further  conduct 
of  telephone  business  throughout  Sweden.  Rejecting  the  proposal 
of  the  General  Telephone  Company  to  build  the  long-distance 
lines  through  Malmo  and  Gothenberg,  it  undertook  at  once  to 
build  these  lines  itself  with  its  own  resources.  At  the  same  time 
it  inaugurated  a  policy  that  was  calculated  to  throw  the  local 
exchange  business  also  into  the  public  hands.  It  announced  that 
the  government  would  undertake  to  connect  as  speedily  as  pos- 
sible all  existing  local  systems,  but  that  the  use  of  the  governmental 
long-distance  lines  would  be  granted  only  to  subscribers  to  govern- 
mental exchanges.  The  effect  of  this  policy  was  to  compel  the 
sale  of  most  of  the  local  undertakings  by  their  promoters  with  all 
possible  dispatch  to  the  government.  Within  three  years  after 
the  initiation  of  this  aggressive  policy,  three  quarters  of  all  the 
local  systems  in  Sweden  had  passed  into  the  hands  of  the  state.1 

The  General  Telephone  Company,  however,  had  built  up  a 
large  and  profitable  business,  and  did  not  wish  to  sell  out  to  the 
state.  It  had  just  completed  the  conquest  of  its  old  rival  and  now 
wanted  to  enjoy  the  opportunity  of  reaping  the  harvest  it  had 
sown.  Very  likely  the  government  foresaw  that  result.  At  any 
rate,  it  allowed  the  company  no  such  opportunity,  but  carried  the 
war  directly  into  the  enemy's  country,  to  adopt  the  military  phrase- 
ology which  is  most  in  keeping  with  the  events  about  to  be  de- 
scribed. The  small  system,  which  it  had  previously  established 

1  Tarifs  til.,  vol.  i,  pp.  85-90. 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  385 

in  Stockholm  for  official  use,  was  made  the  nucleus  of  a  general 
public  system.  Rates  were  cut  below  the  level  of  those  maintained 
by  the  company,  public  call  offices  were  installed,  and  the  long- 
distance lines  of  the  whole  country  were  placed  at  the  disposal  of 
the  local  subscribers  to  the  governmental  system.  These  ener- 
getic measures  speedily  brought  the  General  Telephone  Company 
to  terms. 

Yet  the  company  was  unwilling  to  withdraw  altogether  from 
the  telephone  business.  An  agreement  was  made,  to  go  into  effect  i 
on  May  i,  1891,  by  which  the  company  sold  to  the  state  all  its 
telephone  lines  and  exchanges  situated  more  than  seventy  kilo- 
meters from  Stockholm,  and  bound  itself  to  confine  its  operations 
thereafter  to  the  area  described  by  that  radius.  The  government, 
on  its  side,  granted  the  company  a  special  concession  to  run  its 
lines  over  the  public  ways  within  that  area  for  fifty  years,  and  also 
entered  into  a  mutual  arrangement  with  the  company  by  which 
the  latter's  subscribers  could  make  use  of  the  long-distance  lines 
belonging  to  the  state.  The  latter  arrangement  was,  however, 
terminable  by  the  state  upon  due  notice.  A  prolonged  and  ener- 
getic competition  for  local  patronage  was  then  inaugurated,  in 
whicji  each  side  attempted  to  outbid  the  other  in  offering  the 
public  an  efficient  service  at  cheap  rates. 

The  result  was  an  exceptional  stimulus  to  the  technical  improve- 
ment and  adaptation  of  the  service  to  the  diverse  wants  of  the 
consumers.  The  Swedish  telephone  manufacture  had  already 
gained  a  high  place  in  the  esteem  of  continental  telephone  users, 
and  the  competition  between  the  state  and  the  company  raised 
it  to  an  even  higher  plane  of  technical  perfection.  The  General 
Telephone  Company  had  already,  in  1885,  installed  the  first  multi- 
ple switchboard  in  Europe.  Now  it  followed  this  improvement  by 
the  introduction  (1893-5)  °f  metallic  circuits  upon  its  local  lines 
in  Stockholm.1  In  1889  it  applied  for  permission  to  put  its  wires 
underground,  but  the  prosecution  of  the  work  was  delayed.  In 
1895  the  conversion  of  the  aerial  into  underground  lines  was  begun 
again  and  carried  on  with  vigor.  The  state  showed  itself  able  to 
hold  the  pace  set  by  its  strenuous  rival. 

1  Sundbarg,  vol.  ii,  p.  462. 


386  PUBLIC  OWNERSHIP  OF  TELEPHONES 

In  regard  to  rates,  the  results  were  equally  prompt  and  definite. 
The  original  flat  rate  of  the  Bell  Company  was  160  kronen  (i  krone 
=  26.5  cents)  in  the  inner  city,  and  240-280  kronen  in  the  rest 
of  Stockholm.1  Upon  inaugurating  competition,  the  General 
Telephone  Company  cut  this  rate  at  once  to  100  kronen.  Later, 
when  it  found  its  position  more  secure,  it  introduced  an  improved 
class  of  exchange  service,  for  which  it  charged  125  kronen.  For 
the  unlimited  use  of  the  company's  toll-lines  within  the  area  in 
which  it  was  authorized  to  do  business,  there  was  an  extra  charge 
of  50  kronen.  Now  the  state  hi  its  turn  undertook  to  play  the 
same  game,  and  began  by  cutting  the  company's  flat  rate  to  80 
kronen.  It  charged,  however,  an  additional  preliminary  fee  of 
50  kronen  for  direct  lines  within  the  inner  city  provided  with 
metallic  circuits.2  The  company  retorted  by  devising  new  kinds 
of  service.  It  offered  two-party  lines  at  80  kronen  a  year,  and 
four-party  lines  at  60  kronen.  It  also  offered  a  limited  service  at 
36  kronen  a  year,  for  which  the  subscriber  was  entitled  to  100 
talks  a  quarter.  Such  classes  of  service  were,  until  then,  unknown 
in  any  large  European  center.  In  1891  it  experimented  with  a 
more  audacious  innovation.  It  offered  to  install  a  line  and  instru- 
ment for  10  kronen  a  year,  the  subscriber  to  pay  hi  addition  .10 
kronen  per  message.  This  class  of  service  had  already  been  tried 
in  America,  especially  at  San  Francisco,  and  was  destined  to  play 
an  important  part  in  later  telephone  practice;  but  at  this  time 
the  company  could  not  make  it  pay.  It  was  abandoned  after  two 
years'  trial.  Still  the  rate- war  continued. 

A  dozen  years  after  the  commencement  of  this  unique  struggle, 
the  government's  rates  had  been  further  reduced.3  A  special  class 
of  "  business-service "  was  introduced  at  60  kronen  and  of  "  resi- 
dence-service" at  50  kronen.  Both  these  rates  were  lower  in 
Stockholm  than  in  any  government  exchange  outside  of  the  area 
subject  to  competition.  In  other  words,  the  government  was  dis- 
criminating between  its  own  citizens  on  the  sole  ground  that  the 
lower  rates  were  needed  for  competitive  purposes.  The  company 
too  had  brought  its  rates  down  to  a  lower  level  than  at  the  begin- 

1  Sundbarg,  vol.  ii,  p.  461^  '  Tarifs  ttt.,  vol.  ii,  pp.  289-305. 

*  A.  P.  T.,  1891,  pp.  467  ff.,  and  538  ff. 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  387 

ning  of  the  contest.  In  fact,  it  had  been  forced  to  reduce  its  direct 
line  flat  rates  to  the  old  government  level  of  80  kronen.  This 
prolonged  rate-war,  combined  with  an  excellent  service,  quickly 
produced  a  telephone  development  in  Stockholm  that  put  it  far 
ahead  of  any  other  city  in  the  world. 

This  condition  of  affairs  could  not  last.  The  company  fully 
held  its  own  so  far  as  its  hold  on  the  business  was  concerned,  but 
its  finances  began  to  show  the  strain.  Instead  of  the  golden  harvest 
it  had  anticipated  after  the  subjugation  of  its  early  rival,  it  saw  no 
prospect  ahead  of  it  but  of  declining  dividends,  doomed  sooner  or 
later  to  give  place  to  actual  deficits.  The  government  was  in  no 
better  plight  so  far  as  its  local  business  in  Stockholm  was  con- 
cerned. It  was  notorious  that  the  telegraph  authorities  were 
losing  money  on  that  part  of  their  undertaking.  Clearly  it  could 
only  be  a  matter  of  time  before  the  party  with  the  longer  purse 
would  win,  and  the  other  be  crowded  to  the  wall.  Nor  could  there 
be  much  doubt  which  this  party  would  be.  The  company  might 
still  for  a  long  time  call  upon  its  stockholders  to  throw  good  money 
after  bad  in  the  hope  of  getting  it  all  back  together,  but  this  pro- 
cess could  not  go  on  indefinitely.  On  the  other  hand,  the  resources 
of  the  government  were  fed  from  the  inexhaustible  pockets  of  the 
taxpayer. 

The  only  way  of  escape  for  the  company  was  to  compel  the  gov- 
ernment to  buy  it  out.  Undoubtedly  the  government  would  have 
bought  out  the  company  gladly  at  any  time  at  some  price,  but 
the  company  wanted  to  pull  itself  out  without  sacrificing  all  the 
profits  of  its  early  years.  It  overdid  the  attempt,  and  the  govern- 
ment, exasperated,  broke  off  negotiations.  In  1903  it  even  de- 
nounced the  arrangement  for  direct  connections  between  the  com- 
pany's subscribers  and  the  state  long-distance  lines.1  Since  then  the 
company  has  been  keeping  up  the  fight  in  default  of  less  disagree- 
able alternatives. 

At  the  beginning  of  1907  there  were  89,505  subscribers'  stations, 
and  1306  public  pay  stations  connected  with  the  state  telephone 
system.  There  were  971  telephones  in  17  surviving  cooperative  tele- 
phone systems,  of  which  14  were  in  country  districts.  The  General 
1  Tarifs  ttl.,  vol.  ii,  pp.  300,  305. 


388  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Telephone  Company  had  44,512  stations  in  connection  with  its 
system.  In  the  city  of  Stockholm  itself  the  company  maintained 
37,331  stations  and  the  government  only  13,223.  This  was  a 
development  more  than  three  times  as  great  as  that  in  any  other 
city  on  the  Continent  of  Europe,  except  the  capitals  —  Copen- 
hagen and  Christiania  —  of  the  two  other  Scandinavian  countries. 
Even  they  had  not  nearly  half  the  development  of  Stockholm. 

On  the  other  hand,  during  the  latter  part  of  the  competitive 
period  neither  party  has  kept  its  system  in  the  van  of  technical 
progress  as  at  the  beginning.  The  general  impoverishment  and 
precarious  future  of  the  company  has  prevented  it  from  sinking 
any  but  the  most  indispensable  additional  capital  in  its  plant. 
Without  question  the  plant  is  being  allowed  to  run  down.  The 
company  has  not  yet  introduced  such  a  great  improvement  as  the 
common-battery  method  of  operation  into  its  exchange  system. 
At  the  present  time  one  would  not  go  to  Stockholm  in  order  to  see 
an  example  of  the  best  attainable  telephone  service.  Nor  does 
Scandinavian  long-distance  service  compare  in  efficiency  with  that 
which  is  demanded  by  the  more  exacting  commercial  users  in,  for 
example,  the  industrial  districts  of  Germany.1 

Competition  in  Sweden  has  demonstrated  that  a  governmental 
telegraph  administration  can  follow  the  lead  of  a  private  competi- 
tor.   The  Swedish  telegraph   authorities  have   displayed  ample 
I/  ability  to  adopt  all  the  methods  that  are  so  dear  to  private  business 

managements  in  competing  industries.  They  have  cut  rates,  dis- 
criminated against  the  districts  in  which  they  enjoyed  a  monopoly, 
taken  every  advantage  of  the  fact  that  they  possessed  long-distance 
lines  which  their  rivals  could  not  duplicate  and,  in  general,  made 
the  most  of  their  position  in  order  to  bring  as  much  discomfiture 
as  possible  upon  their  rival.  The  company,  on  its  part,  enjoyed  a 
good  lead  at  the  start  and  has  maintained  a  strong  fight.  Nowhere 
else  in  the  world  has  there  been  furnished  a  better  illustration  of 
genuine  competition  in  the  telephone  industry. 

»/  The  episode  offers  no  convincing  proof  that  competition  in  tele- 

phones is  desirable.  That  it  has  brought  the  telephone  into  greater 
use  than  could  have  been  accomplished  by  any  other  means  is  un- 

1  Schwaighofer,  p.  72. 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  389 

questionable.  But  the  price  is  too  heavy.  Nominally,  to  be  sure, 
the  rates  are  cheap.  In  fact,  the  subscribers  to  each  system  are  de- 
prived of  convenient  communication  with  the  subscribers  to  the 
other  system.  Hence,  the  competitive  service  is  not  worth  so  much 
as  a  monopolistic  service  would  be.  In  the  second  place,  the  main- 
tenance of  two  costly  sets  of  apparatus  for  performing  the  work 
that  might  better  be  performed  by  one,  requires  the  expenditure 
of  much  capital  for  needless  digging  of  holes  in  the  sidewalks,  and 
trenches  in  the  streets,  and  for  needless  duplication  of  exchange- 
equipment  and  line-construction.  Hence,  the  actual  cost  of  the 
competitive  service  is  greater  than  it  would  be  under  centralized 
management.  Finally,  somebody  does  have  to  pay  the  difference 
between  the  existing  cheap  rates  and  the  actual  cost  of  the  service. 
This  may  be  done  by  depressing  the  wages  of  employees  below  the 
rates  currently  paid  elsewhere,  or  by  compelling  the  telephone  in- 
vestors in  the  community  to  pocket  losses  instead  of  profits,  or  by 
compelling  the  taxpayers  in  general,  or  users  of  government  tele- 
phones in  non-competing  areas  in  particular,  to  pay  more  than  they 
justly  should.  The  low  rates  are  therefore  illusory. 

In  fact,  all  these  methods  of  making  up  the  difference  are  em- 
ployed in  Stockholm.  The  wages  are  lower  relatively  to  wages  in 
general  in  Sweden  than  in  Germany.1  Nor  do  the  employees  enjoy 
the  benefits  of  public  insurance  against  sickness,  old  age  and  acci- 
dent which  forms  such  a  commendable  feature  of  the  labor  policy 
of  German  governmental  enterprise.  Secondly,  the  investors  who 
have  furnished  the  capital  for  the  private  telephone  system  in 
Stockholm  are  very  unlikely  ever  to  get  the  full  amount  of  their 
investment  back.  It  is  not  well  for  any  country  to  deprive  of  a  fair 
recompense  those  of  its  citizens  who  have  lawfully  engaged  in  the 
task  of  rendering  the  community  a  service  of  real  public  impor- 
tance. Finally,  it  is  highly  unjust  that  the  public  authorities  should 
discriminate  against  the  less  advantageously  situated  subscribers 
to  the  governmental  telephone  system  for  no  other  reason  than 
that  they  are  less  advantageously  situated. 

The  policy  of  the  Swedish  government  in  engaging  in  protracted 
commercial  warfare  with  a  company  of  its  own  citizens  cannot 

1  Schwaighofer,  p.  71. 


3QO  PUBLIC  OWNERSHIP  OF  TELEPHONES 

therefore  be  commended.  The  artificial  and  abnormal  stimulus 
thereby  given  to  the  telephone  business  does  not  justify  the  adop- 
tion by  a  government  of  business  methods  of  the  character  that 
the  Swedes  have  employed.  At  the  same  time  the  episode  sheds  a 
deal  of  light  on  the  effects  of  telephone  competition  in  general. 
Undoubtedly,  as  long  as  the  competitors  are  able  to  wage  the  con- 
test with  vigor,  the  consumer  is  in  certain  ways  distinctly  benefited. 
In  such  a  business  as  the  telephone,  however,  the  very  fact  of  com- 
petition in  itself  implies  a  limitation  of  the  value  of  the  service, 
while  everything  conspires  to  put  an  early  termination  to  the  illogi- 
cal situation.  The  benefit  derived  from  competition  is  one  for 
which  somebody  sooner  or  later  must  pay,  and  it  is  by  no  means 
certain  that  this ' 1  somebody  "  will  not  prove  to  be,  under  one  guise 
or  another,  the  consumer  himself.  As  a  permanent  status  for  the 
telephone  industry,  competition  is  neither  desirable  nor  possible. 

III.  DENMARK 

The  only  European  countries  of  importance  in  which  the  public 
authorities  have  not  yet  engaged  in  the  telephone  exchange  busi- 
ness are  Denmark  and  Spain.  The  development  of  the  industry 
in  Denmark  can  be  sketched  in  a  few  words.1  The  telephone  was 
introduced  into  Denmark  by  private  enterprise,  and  for  a  long 
time  was  operated  exclusively  by  that  means.  For  a  long  time  the 
state  telegraph  administration  had  no  connection  whatever  with 
the  industry  and  displayed  no  desire  to  have  any  connection  with 
it.  The  condition  of  the  country  and  the  character  of  the  people 
were  favorable  to  an  extensive  use  of  the  telephone.  The  telephone 
was  rapidly  made  available  to  the  entire  Danish  population,  both 
urban  and  rural,  by  the  same  combination  of  local  private  enter- 
prise and  public  spirit  that  manifested  itself  with  such  good  initial 
results  in  Norway  and  Sweden.  The  result  of  the  play  of  these 
local  forces  was  the  ultimate  development  of  a  number  of  large, 
well  organized  stock  companies,  each  holding  a  practical  monopoly 
of  the  telephone  business  in  a  single  district. 

In  1905  the  situation  was  as  follows: 2  the  state  possessed  by 

1  A.  P.  T.,  1891,  pp.  467  ff.,  and  588  ff. 

*  Tarifs  til.,  vol.  ii,  pp.  126  ff.     Cf.  J.  T.  " Statistiques  pour  I'ann6e  1906." 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  391 

law  the  monopoly  of  the  telegraph  and  telephone  business.  In 
practice  it  had  granted  the  right  to  carry  on  the  latter  to  eleven 
private  companies,  one  for  the  peninsula  of  Jutland  and  one  for 
each  of  the  important  islands  of  the  kingdom.  The  government 
reserved  the  right  to  withhold  its  sanction  from  the  rates  of  these 
companies  and  to  establish  and  operate  long-distance  telephone 
lines  connecting  the  systems  of  the  different  companies.  All  other 
long-distance  lines,  namely  the  lines  connecting  the  different  ex- 
changes of  the  same  company,  were  constructed  and  operated  by 
the  company  concerned. 

IV.  SPAIN 

The  development  of  the  telephone  business  in  Spain  may  be 
briefly  alluded  to.1  No  attention  appears  to  have  been  bestowed 
on  the  telephone  until  1884.  In  that  year,  by  a  decree  of  August 
n,  the  government  reserved  to  itself  the  exclusive  right  to  engage 
in  the  telephone  business  anywhere  in  Spain.  The  government 
seems  to  have  done  nothing  further  in  the  premises  for  two  years. 
Then,  concluding  that  it  did  not  care  to  engage  in  the  business  at 
all,  it  issued  the  decree  of  June  13,  1886,  by  which  the  task  of 
introducing  the  telephone  into  Spain  was  confided  to  private 
enterprise.  This  decree  established  the  principle  of  the  grant  of 
the  monopoly  of  the  telephone  business  in  each  city  to  the  high- 
est bidder.  The  government  determined  in  advance  the  maximum 
rates  which  should  be  charged,  and  awarded  the  concession  to  the 
applicant  who  promised  to  give  the  government  the  largest  per- 
centage of  the  gross  receipts.  No  concession  was  to  be  granted, 
however,  unless  the  government  was  assured  at  least  10  per  cent. 
In  the  most  important  commercial  cities  the  percentages  actually 
obtained  greatly  exceeded  this  amount.  Thus,  in  Barcelona,  the 
rate  was  33.75  per  cent  and  in  Bilbao  it  reached  34  per  cent.  Alto- 
gether thirty-five  exchange  systems  were  established  under  these 
conditions. 

Nevertheless,  it  was  not  long  before  the  government  reached  the 

1  Translations  of  the  successive  royal  decrees  and  ordinances  in  relation  to  the 
conduct  of  the  telephone  business  in  Spain  are  printed  in  Tarifs  /£/.,  vol.  i,  pp.  124-143, 
and  vol.  ii,  pp.  135-182. 


392  PUBLIC  OWNERSHIP  OF  TELEPHONES 

conclusion  that  the  policy  of  handing  over  the  telephone  business 
to  local  monopolies,  even  when  the  maximum  rates  were  deter- 
mined in  advance,  was  not  calculated  to  promote  the  best  interests 
of  telephone  users.  There  was  no  method  of  securing  the  reduc- 
tion of  the  rates  after  the  maximum  ceased  to  be  reasonable,  nor  of 
securing  extensions  of  the  service  which  would  diminish  the  mo- 
nopoly profit.  By  a  new  decree  of  November  u,  1890,  the  govern- 
ment abandoned  the  principle  of  monopoly  and,  reserving  to  itself 
the  right  to  establish  exchange  systems  where  it  saw  fit,  it  threw 
open  the  telephone  business  to  all  who  cared  to  engage  in  it.  It 
absolved  the  existing  companies  from  the  obligation  to  pay  the 
stipulated  shares  of  the  gross  receipts,  or  any  special  tax  of  any 
sort  whatsoever.  The  principle  of  the  limitation  of  maximum 
rates  was  retained,  but  in  all  other  respects  the  decree  of  1890  con- 
ferred upon  all  persons  who  should  engage  in  the  telephone  busi- 
ness all  the  liberty  of  action  which  they  would  have  had  in  any 
ordinary  business. 

The  Spanish  government  has  never  taken  advantage  of  its  re- 
served right  to  engage  in  the  telephone  business,  and  at  the  present 
time  operates  only  a  few  long-distance  lines  for  its  own  administra- 
tive purposes.  The  ordinary  commercial  long-distance  lines,  as 
well  as  the  local  exchanges,  remain  in  the  hands  of  private  com- 
panies. But  competition  has  been  conspicuously  absent.  The  fail- 
ure of  the  policy  of  free  competition  was  ultimately  recognized  by 
the  government,  and  on  June  9,  1903,  an  ordinance  was  issued 
providing  for  the  conduct  of  the  business  on  the  basis  of  the  status 
quo,  in  default  of  the  exercise  by  the  government  of  its  own  powers 
under  its  nominal  policy  of  public  ownership.  The  telephone  busi- 
ness is  still  conducted  in  Spain  by  a  number  of  private  companies 
each  possessing  a  monopoly  in  its  own  district. 

The  telephone  policy  of  the  Spanish  government  cannot  be  re- 
garded as  indicative  of  the  possession  by  the  public  officials  of 
either  administrative  capacity  or  the  spirit  of  enterprise.  With- 
out these  two  qualities  no  government  can  hope  to  carry  on  any 
business  undertaking  in  a  business-like  manner.  Doubtless  the 
Spanish  government  does  wisely  in  leaving  telephone  users  to 
worry  along  as  best  they  may  with  the  private  monopolies. 


PRIVATE  OWNERSHIP  IN  NORWAY,  ETC.  393 

Such  is  the  record  of  private  ownership  of  telephones  in  Europe. 
Private  ownership  was  the  original  policy  of  every  important 
country  in  Western  Europe  except  Germany  and  Switzerland. 
Private  ownership  exists  to-day  only  in  Denmark  and  Spain,  and 
partially  in  Norway,  Sweden,  and  Holland.  What  was  the  cause 
of  this  nearly  universal  abandonment  of  the  policy  of  private 
ownership?  Was  it  that  private  ownership  proved  unable  to  give 
a  satisfactory  service  at  a  reasonable  price  ? 

Under  private  ownership  a  more  extensive  use  of  the  telephone 
was  brought  about  in  some  countries  than  in  others.  In  France, 
Spain,  and  Italy,  the  development  under  private  ownership  was 
small,  in  Scandinavia  great.  In  Norway,  for  example,  in  1906, 
there  were  almost  twenty  times  as  many  telephones  per  capita  as 
in  Italy.  In  the  latter  country  there  were  only  119  exchange  sys- 
tems in  operation  in  all  the  1766  cities  and  villages  in  which  the 
establishment  of  telephone  systems  was  sanctioned  under  the  law 
of  1903.  In  Norway,  on  the  other  hand,  practically  every  city  and 
village  in  the  kingdom  was  supplied  with  telephone  service  within 
a  dozen  years  after  its  first  introduction.  A  similar  contrast  exists 
between  the  telephone  development  in  Denmark  and  in  Spain. 

The  causes  of  these  varying  results  attained  under  private 
ownership  were  partly  the  differences  in  the  demand  for  telephone 
service,  partly  the  differences  in  the  policy  of  the  telephone  man- 
agements. The  demand  for  telephone  service  has  been  greater  in 
Norway  than  in  Italy  for  the  following  reasons: 

(1)  in  Norway  the  rural  population  is  more  scattered  than  in 
Italy,  and  feels  a  need  for  artificial  means  of  local  communication 
which  the  Italian  peasantry  does  not  feel; 

(2)  in  Norway  there  is  no  such  cheap  supply  of  labor  as  in 
Italy,  and  labor-saving  devices  of  all  sorts  are  universally  more 
useful; 

(3)  in  Norway  there  is  a  more  equitable  diffusion  of  wealth, 
and  consequently  the  telephone  is  within  the  means  of  a  greater 
portion  of  the  community; 

(4)  in  Norway  there  is  a  broader  diffusion  of  education  than 
in  Italy,  and  a  correspondingly  broader  basis  of  appreciation  for 
such  a  medium  of  communication  as  the  telephone; 


394  PUBLIC  OWNERSHIP  OF  TELEPHONES 

(5)  in  Norway  there  is  a  greater  degree  of  social  equality  than 
in  Italy  and  consequently  a  greater  quantity  of  social  intercourse 
to  be  facilitated  by  one  means  or  another; 

(6)  in  Norway  the  alternative  means  of  communication  are 
less  adequate  to  meet  the  existing  need  than  in  Italy;  and 

(7)  in  Norway  the  habits  of  the  people  and  their  general  man- 
ner of  living  make  communication  in  the  ordinary  course  of  daily 
existence  less  frequent  and  less  easy  than  is  the  case  in  Italy.   In 
short,  in  Norway,  both  the  nature  of  the  country  and  the  character 
of  the  people  create  a  demand  for  telephone  service  far  stronger 
than  can  possibly  exist  in  Italy. 

But  these  differences  in  demand  do  not  wholly  explain  the  more 
extensive  use  of  the  telephone  in  Norway  than  in  Italy.  In  re- 
sponse to  the  divergent  nature  of  the  demand,  the  modes  of  sup- 
plying the  service  in  the  two  countries  were  bound  to  assume  differ- 
ent forms.  In  the  former  country,  for  the  most  part,  the  local 
needs  of  small  detached  communities  were  met  by  local  initiative. 
In  the  latter  country  the  special  needs  of  small  detached  classes, 
the  financial  and  commercial  interests  in  the  great  cities,  were  met 
by  centralized  commercial  undertakings.  The  Norwegian  village 
enjoyed  ample  security  for  a  satisfactory  local  service  by  virtue 
of  the  fact  that  the  service  owed  its  very  existence  to  the  initia- 
tive of  those  who  made  use  of  it.  The  Italian  city  had  no  security 
for  a  satisfactory  service  because,  after  the  breakdown  of  the  prin- 
ciple of  competition,  there  was  no  harmony  of  interest  between 
the  profit-seeking  owner  and  the  unprotected  user  of  the  service. 
The  policy  of  the  Norwegian  local  telephone  company,  or  mutual 
association,  was  to  give  its  stockholders,  or  members,  as  good  a 
service  as  they  desired  as  cheaply  as  possible.  The  policy  of  the 
Italian  centralized  telephone  corporation  was  to  give  its  subscrib- 
\/  ers  as  bad  a  service  as  they  would  tolerate  as  dearly  as  possible. 
In  Norway,  so  long  as  the  telephone  business  was  confined  to  local 
communities,  private  ownership  of  telephones  was  certain  to  give 
satisfaction.  In  Italy,  unregulated  private  ownership  was  certain 
never  to  give  satisfaction. 

Towards  these  two  fundamentally  different  forms  of  business 
enterprise  the  public  authorities  assumed  wholly  different  atti- 


PRIVATE  OWNERSHIP  IN  NORWAY,/ ETC.  395 

tudes.  In  Norway  the  policy  of  the  public  authorities  was  to  leave 
local  initiative  to  follow  its  own  bent  so  long;  as  it  confined  its 
attention  to  local  needs.  In  Italy  the  public  authorities  found  it 
impossible  from  the  very  start  to  leave  private/  enterprise  to  follow 
its  own  bent  even  in  purely  local  affairs.  But  the  failure  of  com- 
petition to  provide  an  adequate  safeguard  for  the  interests  of  urban 
telephone  users  does  not  explain  the  early  repressive  attitude  of 
the  Italian  public  authorities,  nor  does  the  mere  extension  of  the 
telephone  to  the  inter-urban  service  explain  the  similar  attitude 
of  the  Norwegian  public  authorities.  These  events  simply  raised 
the  question :  can  the  telephone  monopoly  be  best  administered  in 
the  public  interest  by  a  policy  of  public  regulation,  or  of  public 
ownership?  They  do  not  explain  the  almost  universal  choice  of 
the  latter  policy. 

As  a  matter  of  fact,  as  has  already  been  pointed  out,  the  owner- 
ship of  the  telegraphs  by  the  public  authorities  was  the  decisive 
factor  in  bringing  about  the  transition  to  public  ownership  of  the 
telephones.  It  follows,  therefore,  that  although  the  private  tele- 
phone companies  often  furnished  an  unsatisfactory  service  at  an 
excessive  price,  the  general  abandonment  of  the  policy  of  private 
ownership  cannot  be  ascribed  to  that  cause  alone.  Private  enter- 
prise can  be  condemned  only  upon  being  shown  to  have  failed  to 
give  a  satisfactory  service  at  a  reasonable  price,  when  subjected 
to  as  effective  public  regulation  as  governmental  authorities  are 
capable  of  exercising.  The  historical  truth  is  that  the  policy  of 
private  ownership  under  public  regulation  never  had  a  fair  trial. 


CHAPTER  XXII 

COMPARATIVE  TELEPHONE  RATES 

ONE  of  the  first  considerations  in  regard  to  a  telephone  system 
from  the  point  of  view  of  the  subscriber  is  the  price  of  service. 
Hence,  after  reviewing  the  development  of  the  leading  telephone 
systems  on  the  Continent  of  Europe,  the  temptation  is  strong  to 
compare  the  rates  which  are  actually  in  effect  in  the  various  coun- 
tries with  a  view  to  ascertaining  which  enjoys  the  cheapest  service. 
The  undertaking  presents  many  difficulties. 

In  local  exchange  service  the  annual  subscription  paid  by  the 
subscriber  does  not  necessarily  indicate  the  actual  expenses  which 
he  is  called  upon  to  bear.  It  is  necessary  to  know  not  only  what 
additional  payments  he  is  required  to  make,  such  as  contributions 
towards  the  cost  of  construction,  or  charges  on  account  of  main- 
tenance of  his  line  and  the  installation  of  his  telephone  instrument, 
but  also  what  services  he  is  entitled  to  receive  in  return.  Finally, 
it  is  necessary  to  know  what  standard  of  service  is  maintained. 
A  bad  service  is  dear  at  any  price.  But  a  high  price  does  not 
always  denote  a  good  service.  Under  similar  conditions,  if  rates 
are  reasonable,  a  low  rate  denotes  a  low  standard  of  service  and  a 
high  rate  a  high  standard  of  service.  But  the  expenses  of  main- 
taining a  given  standard  of  service  vary  from  country  to  country 
on  account  of  differences  in  the  cost  of  materials  and  especially  in 
the  cost  of  labor.  Furthermore,  the  powers  of  telephone  manage- 
ments with  regard  to  the  use  of  rights  of  way  over  private  and 
public  property  vary  greatly  from  country  to  country.  In  some, 
rights  of  way  are  free,  in  others  they  are  costly.  Hence,  a  com- 
parison of  the  prices,  even  for  precisely  identical  services,  affords 
no  certain  indication  of  their  relative  reasonableness. 

Moreover,  even  if  the  conditions  and  standards  of  service  were 
directly  comparable,  and  the  expenses  of  construction  and  main- 
tenance identical  in  two  different  countries,  it  would  not  follow 
that  any  difference  in  the  rates  that  might  exist  for  an  equivalent 


COMPARATIVE  TELEPHONE  RATES  397 

service  would  measure  the  extent  to  which  the  higher  rate  was 
unreasonable.  For  both  rates  might  be  unreasonable,  one  unrea- 
sonably high  and  the  other  unreasonably  low,  or  even  both  might 
be  unreasonably  high  or  low.  A  rate  is  unreasonably  low  if  it  fails 
to  provide  an  adequate  remuneration  to  the  promoter  of  the  enter- 
prise. Governmental  telephone  rates  are  unreasonably  low  which 
enable  telephone  users  to  shift  a  portion  of  the  cost  of  service  to 
the  shoulders  of  the  general  taxpayers.  For  example,  the  rates  in 
Wurtemberg  are  lower  than  elsewhere  in  Germany.  The  standard 
of  service  in  Wurtemberg  is  also  on  the  whole  lower,  but  even  so 
the  rates  are  unreasonably  low.1  Hence,  it  is  a  doubly  indefensible 
proceeding  to  conclude  that  the  rates  in  the  rest  of  Germany  are 
unreasonably  high  because  higher  than  in  Wurtemberg. 

These  difficulties  make  it  practically  impossible  so  to  compare 
telephone  exchange  rates  in  different  countries  directly  with  one 
another  as  to  reach  any  valuable  conclusions  concerning  their 
reasonableness  or  unreasonableness.  The  preliminary  allowances 
which  must  be  made  are  too  subtle,  and  the  evidence  on  the  basis 
of  which  such  allowances  must  be  calculated  is  not  available  in 
sufficiently  accurate  form.  In  the  earlier  period  of  the  telephone 
industry,  when  the  demand  for  telephone  service  was  more  homo- 
geneous and  the  standards  of  construction  less  differentiated  than 
at  present,  the  single  flat  rates  that  then  prevailed  were  more 
nearly  comparable.  Thus  even  with  all  due  allowance  for  dissimi- 
larities of  conditions  in  Berlin  and  Paris  in  the  middle  of  the  '8o's, 
the  fact  that  the  rate  in  the  latter  city  was  more  than  three  times 
as  high  as  in  the  former  can  only  mean  that  the  inhabitants  of 
Paris  were  paying  an  excessive  price  for  their  telephone  service. 
That  they  were  still  paying  an  excessive  price  for  telephone  service 
a  score  of  years  later  is  made  manifest,  however,  not  so  much 
by  a  comparison  with  rates  elsewhere,  as  by  the  direct  evidence 
afforded  by  the  history  of  the  Paris  exchange  system  itself. 
Since  in  general  the  unreasonableness  of  telephone  rates  can  be 
ascertained  with  tolerable  certainty  by  means  of  internal  evi- 
dence alone,  a  comparative  study  of  the  existing  schedules  of 

1  Verwaltungsbericht  der  wiirtt.  Verkehrsanstdten  fur  das  Jahr  igo6 ;  Tabellen 
33,  35- 


398  PUBLIC  OWNERSHIP  OF  TELEPHONES 

exchange  rates  would  be  not  only  inconclusive  but  also  super- 
fluous. 

A  resume  of  the  conditions  on  which  telephone  service  is  ren- 
dered at  the  present  time  in  the  various  countries  will  not  be 
without  value  as  an  indication  of  the  development  of  the  business 
methods  of  the  various  telephone  administrations.  These  condi- 
tions have  been  recently  compiled  by  the  International  Telegraph 
Bureau  at  Berne.1  In  1905  the  flat  rate  was  the  only  basis  of 
charge  for  a  direct  line  connecting  the  subscriber  with  the  central 
office  on  the  governmental  telephone  systems  of  Wurtemberg, 
Austria,  Belgium,  France  (in  cities  with  more  than  80,000  inhab- 
itants), Hungary,  Luxemburg,  Norway,  the  Netherlands,  and 
Sweden,  and  on  the  private  telephone  systems  of  Denmark  (in 
Copenhagen  an  additional  charge  in  case  more  than  5000  conver- 
sations originate  during  the  year  from  the  same  station),  Spain, 
Italy,  Norway  (in  Christiania  an  additional  charge  for  calls  in 
excess  of  6000  from  the  same  station  in  a  year),  the  Netherlands 
and  Sweden.  The  message  rate  was  optional  in  Germany  (the 
imperial  telephone  area),  Bavaria,  France  (in  cities  with  less  than 
80,000  inhabitants),  and  in  Norway  and  Sweden  (to  a  limited 
extent).  In  Switzerland  the  message  rate  was  the  only  mode  of 
charge. 

The  flat  rate  for  a  telephone  station  placed  by  the  subscriber 
at  the  disposal  of  the  public  (such  as  telephones  in  restaurants, 
cafes,  tobacconists,  and  so  forth)  was  raised  above  the  ordinary 
rate  in  the  governmental  telephone  systems  of  Austria,  Hungary 
and  Luxemburg,  and  in  the  private  telephone  systems  of  Den- 
mark and  Spain.  Reductions  from  the  ordinary  rates  are  made  to 
the  public  authorities  in  Germany,  Austria,  Belgium,  Spain, 
France,  Hungary  and  Switzerland,  to  charitable  organizations  in 
Hungary,  and  to  subscribers  who  rent  more  than  one  direct  line 
in  Belgium  (partially),  Hungary  (Budapest),  and  in  Norway. 
The  subscriber's  line  is  installed  without  charge  to  any  distance 
from  the  central  office  in  France  (within  the  municipal  limits  of 
Paris  and  Lyons  only),  to  a  distance  of  not  more  than  five  kilo- 
meters from  the  central  office  in  Germany  (the  imperial  telephone 
1  Tarifs  ta.t  vol.  ii,  pp.  433-483- 


COMPARATIVE  TELEPHONE  RATES  399 

area)  and  Bavaria;  of  not  more  than  three  kilometers  in  Wurtem- 
berg  and  Spain;  of  not  more  than  two  kilometers  in  Switzerland, 
Austria  (Vienna  only),  and  Denmark.  The  subscriber  contributes 
towards  the  cost  of  construction  in  Austria  and  in  France.  The 
flat  rate  varies  according  to  the  distance  of  the  subscriber  from  the 
exchange  in  Belgium  and  the  Netherlands.  In  Italy  the  rate  varies 
according  as  the  line  is  aerial  or  underground ;  in  Norway  according 
as  it  is  composed  of  a  single  line  with  grounded  return  or  of  a 
metallic  circuit,  and  in  Sweden  and  the  Netherlands  (Amsterdam 
and  Rotterdam  only)  according  as  the  telephone  is  used  by  a  busi- 
ness or  residential  subscriber.  These  factors  are  all  important 
in  the  consideration  of  the  comparative  height  of  telephone  rates. 
Differences  in  the  length  of  line  which  are  installed  without  extra 
charge  are  especially  significant  because  the  cost  of  construction 
of  the  line  is  an  important  item  in  the  total  expense  of  rendering 
telephone  service.  Consequently  variations  in  the  quantity  of 
line  which  is  included  with  the  service  obtained  for  the  ordinary 
exchange  rate  materially  affect  the  true  height  of  the  rate. 

The  telephone  instrument  is  furnished  free  except  in  Austria, 
France,  Norway  (in  some  private  exchange  systems),  Sweden 
(the  subscriber  pays  an  entrance  fee  both  in  governmental  and 
private  exchange  systems),  and  Switzerland  (the  charge  is  higher 
during  the  first  two  years  of  the  subscriber's  contract).  The  sub- 
scriber's contract  runs  one  year  in  Germany  (imperial  telephone 
area),  Bavaria,  Belgium  and  France,  two  years  in  Wurtemberg, 
and  five  years  in  Sweden.  In  the  other  countries  no  definite  period 
is  stated.  The  period  of  a  conversation,  local  or  long-distance,  is 
five  minutes  in  Bavaria,  Wurtemberg,  Belgium  and  Hungary 
(local  conversations  only),  elsewhere  three  minutes.  The  rate  for 
local  calls  at  public  pay  stations  is  approximately  two  cents  in 
Switzerland  ancl  in  France  (outside  of  Paris),  two  and  one-half 
cents  in  all  Germany  and  Sweden,  three  cents  in  Paris  and  Den- 
mark, four  cents  in  Austria,  Hungary  and  Spain,  five  cents  in 
Belgium,  and  six  cents  in  Italy.  The  long-distance  rates  are  gradu- 
ated according  to  distance  except  in  Luxemburg  and  the  Nether- 
lands. In  Luxemburg  there  is  a  single  rate  for  all  distances,  but 
graduated  according  as  the  conversation  takes  place  between  sub- 


400  PUBLIC  OWNERSHIP  OF  TELEPHONES 

scribers  or  non-subscribers.  In  the  Netherlands  there  is  a  single 
long-distance  rate  for  the  whole  country,  which  is  doubled  for  all 
communications  taking  place  between  11.40  A.  M.  and  3.40  P.  M. 
Urgent  messages  are  charged  triple  rates  throughout  Germany 
and  in  Austria,  Hungary  and  Norway,  and  double  rates  in  Den- 
mark, the  Netherlands  and  Sweden.  Reduced  rates  are  given 
at  night  in  Sweden,  Denmark,  France,  Italy  and  Hungary. 
Throughout  Germany  a  reduction  of  50  %  is  given  to  subscribers 
who  desire  the  same  long-distance  connection  every  day  at  the 
same  hour.  Reductions  of  an  analogous  nature  are  given  in  France 
(at  night  only),  Italy  (at  night  only),  Spain  and  Belgium.  All 
countries  make  provision  for  delivering  and  receiving  telegrams  by 
telephone  at  a  small  extra  charge  or  free,  and  for  summoning  per- 
sons to  public  call  offices  at  the  request  of  subscribers  or  persons 
at  other  call  offices.  Both  Germany  and  France  make  provisions 
for  special  night  calls  at  offices  where  regular  night  service  is  not 
available. 

In  general  the  governments  which  have  been  in  the  telephone 
business  longest  —  Germany  and  Switzerland  —  treated  their 
subscribers  in  1905  with  the  most  liberality  in  regard  to  the  con- 
ditions of  the  service.  That  is  the  most  definite  conclusion  that 
can  be  drawn  from  a  comparison  of  the  subscribers'  contracts  in 
the  various  countries. 

Outside  of  the  countries  the  telephone  systems  of  which  have 
been  studied  most  carefully,  the  development  of  the  telephone 
rates  on  the  Continent  of  Europe  has  been  in  general  unmarked  by 
features  of  particular  interest.  The  most  important  fact  is  not 
whether  the  general  level  of  rates  is  higher  or  lower  in  one  country 
than  in  another.  It  is  the  capacity  of  a  telephone  administration 
so  to  differentiate  its  rates  as  to  keep  pace  with  the  increasing 
complexity  of  the  demand  for  telephone  service.  With  the  lapse 
of  time,  and  the  progress  of  the  art  of  telephony,  it  becomes  at 
once  both  desirable  and  possible  to  adjust  rates  to  the  finer  differ- 
ences in  the  use  which  ever  widening  circles  of  subscribers  desire 
to  make  of  the  telephone  service.  By  comparing  the  first  and 
second  editions  of  the  Tarifs  telephoniques  published  by  the  Inter- 
national Telegraph  Bureau,  an  idea  can  be  gained  of  the  extent  to 


COMPARATIVE  TELEPHONE  RATES  401 

which  this  process  of  change  was  carried  in  Europe  generally 
during  the  decade  which  was  bisected  by  the  end  of  the  century. 

In  Luxemburg  the  original  flat  rates  were  fixed  by  decrees  of 
December  17,  1884,  and  March  9,  1887.  In  1905  these  flat  rates 
were  still  in  effect.  In  Belgium  also  the  early  flat  rates  were  re- 
tained without  change  throughout  the  decade.  In  Austria  and 
Hungary  likewise  no  changes  were  made.  In  Spain  and  Italy  the 
private  companies  were  equally  unprogressive.  In  the  Scandina- 
vian countries  the  multiplicity  of  local  rates  makes  comparison 
difficult.  It  is  certain  at  least  that  the  old  methods  of  charge  were 
not  abandoned.  Only  in  the  Netherlands  is  there  a  decided  change. 
There  the  policy  of  municipal  ownership  infused  new  life  into  the 
local  telephone  business. 

In  the  Scandinavian  countries,  however,  there  was  less  need  for 
differentiation  of  rates  than  in  countries  in  which  the  telephone 
business  was  developed  from  the  beginning  under  a  centralized 
management.  The  liberty  originally  allowed  to  local  initiative 
established  exchange  rates  on  a  basis  that  was  well  enough  adapted 
to  local  needs.  Further  progress  lay  in  the  coordination  of  the 
early  rates  in  order  to  form  one  harmonious  system.  To  do  this 
effectually  the  power  of  the  state  was  indispensable,  and  in  all 
three  Scandinavian  countries  that  power  was  exercised  to  a  greater 
or  less  degree.  In  Sweden  the  government  took  the  larger  part  of 
the  business  into  its  own  hands  and  waged  a  vigorous  contest  with 
the  General  Telephone  Company  of  Stockholm  for  the  rest.  In 
Norway  the  government  also  entered  the  field  on  its  own  account, 
but  trusted  to  its  example,  as  well  as  to  direct  action,  to  induce  the 
private  companies  to  develop  their  rates  in  harmony  with  the 
general  progress  of  the  industry.  In  Denmark  the  government 
preferred  not  to  undertake  the  direct  responsibility  for  the  conduct 
of  the  telephone  business,  but,  recognizing  that  monopoly  of  some 
sort  was  desirable,  confided  it  to  private  companies.  The  govern- 
ment reserved  in  its  own  hands,  however,  complete  control  over 
rates.  The  policy  of  all  three  countries  was  to  take  up  the  task  of 
looking  out  for  a  reasonable  development  of  rates  at  the  point 
where  local  initiative  was  unable  to  proceed  further. 

In  the  countries  where  the  nature  of  the  demand  for  telephone 


402  PUBLIC  OWNERSHIP  OF  TELEPHONES 

service  made  local  initiative  from  the  very  beginning  less  advan- 
tageous, the  process  of  development  was  the  reverse.  In  these 
countries  progress  lay  in  the  change  from  original  homogeneity 
to  later  heterogeneity.  In  some  of  these  countries  the  early  steps 
in  this  process  were  facilitated  by  the  grant  of  concessions  to 
private  operating  companies  which  adjusted  their  rates  to  the 
localities  in  which  they  established  exchanges.  This  policy,  how- 
ever, proved  satisfactory  only  in  the  initial  stages  of  the  industry. 
The  greater  the  extent  to  which  the  early  demand  for  telephone 
service  was  confined  to  the  commercial  classes,  and  the  greater 
the  extent  to  which  the  further  development  of  the  industry  took 
place  in  response  to  a  demand  primarily  for  a  better  communica- 
tion between  different  localities  rather  than  between  different 
persons  in  the  same  locality,  the  less  adequate  became  the  policy 
of  concessions  to  secure  the  progressive  readjustment  of  rates  to 
the  altered  conditions.  In  the  first  place,  it  was  impossible  to  grant 
to  these  companies  the  conditions  of  operation  which  were  neces- 
sary in  order  to  induce  them  to  extend  their  operation  into  the  less 
promising  districts,  and  secondly  a  rate-policy  calculated  to  secure 
the  widest  development  of  the  use  of  the  telephone  conflicted  with 
their  interest  in  attaining  the  greatest  possible  monopoly  profits. 
Hence,  sooner  or  later  in  all  such  countries,  the  advantages  of 
complete  centralization  in  the  management  of  the  business  became 
preponderant.  Under  the  circumstances  that  have  determined 
the  development  of  the  telephone  business  on  the  Continent  of 
Europe,  the  concentration  of  its  management  in  the  hands  of  the 
central  governments  was  inevitable. 

These  governmental  telephone  administrations  are  able  to 
introduce  modifications  in  the  exchange  rates  with  a  thoroughness 
and  on  a  scale  impossible  under  any  system  of  decentralized  man- 
agement. For  example,  in  Austria  the  schedule  of  exchange  rates 
established  in  1887,  when  the  government  first  became  convinced 
of  the  necessity  for  playing  an  active  part  in  telephone  affairs, 
remained  in  effect  unchanged  for  twenty  years.  This  schedule  was 
originally  not  ill  adapted  to  the  existing  simplicity  of  the  demand 
for  telephone  service.  By  1907,  however,  in  response  to  the  in- 
creasing complexity  of  this  demand,  the  Austrians  decreed  a 


COMPARATIVE  TELEPHONE  RATES  403 

fundamental  reform  of  their  whole  schedule  of  exchange  rates. 
The  old  tariff  resembled  in  many  respects  the  French.  The  new 
subscriber  was  required  to  purchase  his  own  instrument  and  to 
make  an  initial  contribution  toward  the  cost  of  construction  of  his 
line,  intended  to  reimburse  the  telephone  administration  for  its 
own  outlay  on  that  account.  If  the  line  was  provided  with  a 
metallic  circuit  this  contribution  was  increased  by  50  %.  No 
further  initial  contribution  was  required,  but  the  ordinary  flat  rate 
comprised  a  fixed  annual  charge  intended  to  defray  the  cost  of  the 
maintenance  of  the  subscriber's  line  and  instrument  and  that  of 
the  construction  and  maintenance  of  the  general  plant  and  of  the 
service  rendered  by  the  exchange  operator  in  effecting  connec- 
tions. These  annual  charges  were  higher  in  Vienna  than  elsewhere, 
and  for  lines  intended  to  be  used  by  the  public  generally  than  for 
those  intended  only  for  the  use  of  the  subscriber  himself.  Other- 
wise, there  was  little  attempt  to  adjust  the  rates  to  varying  indi- 
vidual and  local  needs.1  The  reorganization  of  the  Austrian  tele- 
phone rates  was  provided  for  by  a  decree  of  January  16,  1907.2 

The  new  tariff  is  composed  of  flat  rates,  graduated  according  to 
the  size  of  the  exchange,  and  the  nature  and  extent  of  the  indi- 
vidual use  made  of  the  service  by  each  subscriber.  Exchange  sys- 
tems are  divided  into  six  classes: 

I.  those  containing  over  20,000  subscribers; 

II.  those  containing  from  5,000  to  20,000; 

III.  those  containing  from  2,000  to  5,000; 

IV.  those  containing  from  500  to  2,000; 

V.  those  containing  from  200  to  500;  and 

VI.  those  containing  200  or  less  subscribers. 

Within  the  same  exchange  system  the  local  service  is  divided  into 
three  classes:  (A)  direct  business  service;  (B)  direct  residence  ser- 

1  In  case  a  subscriber  wished  to  connect  additional  stations  to  his  principal  station, 
he  was  charged  for  the  construction  of  the  additional  line  and  required  to  pay  the 
annual  flat  rate  on  each  additional  station  as  well  as  on  the  principal  station.  If 
several  stations  were  connected  in  series  to  the  same  line  for  the  service  of  different 
subscribers,  each  was  required  to  pay  an  initial  contribution  for  his  own  instrument 
and  for  his  share  of  the  common  line,  but  the  annual  flat  rate  was  charged  only  once 
against  the  line  as  a  whole. 

1  A.  P.  T.,  1907,  pp.  202-212. 


404  PUBLIC  OWNERSHIP  OF  TELEPHONES 

vice ;  and  (C)  party  lines.  The  class  of  business  service  is  further 
subdivided  into  three  sections:  (i)  those  business  lines  on  which 
originate  from  6,000  to  12,000  calls  per  annum;  (2)  those  on  which 
originate  from  3,000  to  6,000;  and  (3)  those  on  which  originate 
3,000  or  less.  Party  lines  may  contain  (a)  two,  or  (b)  four  sub- 
scribers' stations,  but  business  houses  are  permitted  to  subscribe 
to  two-party  lines  only.  Telephone  stations  at  hotels,  cafes,  etc., 
intended  to  be  used  by  the  general  public  are  not  permitted  to  be 
attached  to  any  party  line.  The  number  of  calls  per  annum  which 
may  originate  on  any  direct  line  is  limited  to  12,000,  and  subscrib- 
ers to  stations  on  the  two  classes  of  party  lines  are  restricted  each 
to  three  fourths  and  one  half  of  this  number  respectively.  The 
limits  within  which  the  flat  rate  entitles  the  subscriber  to  the  con- 
struction of  his  line  without  extra  charge  are  variously  denned 
for  the  various  classes  of  exchange  systems,  and  lines  extending 
beyond  the  free  local  area  are  charged  mileage  fees  on  the  excess. 

Tariff  of  1907 
Class  of  eocch. 

System 

I 

II 

III 

IV 

V 

VI 

The  rate  for  additional  telephones  in  connection  with  a  direct 
line  serving  one  subscriber  is  40  kronen  when  there  are  more  than 
three  such  additional  telephones.  These  together  with  the  mileage 
charge  for  such  telephone  stations,  when  situated  on  separate 
premises,  compose  the  schedule  of  rates  applicable  to  private 
branch  exchanges,  and  such  special  classes  of  service.  The  ordin- 
ary subscriber's  contract  runs  for  one  year,  but  special  contracts 
may  be  made  for  six  months  at  60  %  of  the  annual  rates. 

In  introducing  this  schedule  the  administration  made  special 

1  Distance  from  "  central "  in  kilometers;  longer  lines  are  charged  on  the  excess. 
*  i  krone  —  a  trifle  less  than  20  cents. 


A^Vllt'VV'J      \SJ 

exch.  area 

1 

Rates  (kronen)  2 

Km. 

A  i 

A2 

A3 

B 

Ca 

Cb 

6 

500 

400 

300 

240 

1  80 

IOO 

4 

400 

320 

240 

200 

145 

85 

3 

320 

260 

200 

170 

1  20 

70 

2 

260 

215 

170 

145 

IOO 

60 

lJ/£ 

215 

180 

145 

130 

90 

55 

I 

180 

150 

120 

115 

80 

50 

COMPARATIVE  TELEPHONE  RATES  405 

allowance  to  the  existing  subscribers  for  their  contributions 
towards  the  cost  of  construction  of  their  telephone  connections, 
and  thereafter  such  contributions  were  no  longer  to  be  required. 
The  subscriber's  use  of  his  connection  is  recorded  in  each  case. 
Party-lines  are  equipped  with  an  automatic  register.  On  other 
lines  manual  counts  of  the  number  of  messages  sent  in  a  day  are 
made  on  four  separate  days,  one  in  each  of  the  four  seasons  of  the 
year.  The  average  daily  number  of  connections  ascertained  in 
this  way  for  each  station  is  multiplied  by  300.  The  product  is  the 
official  number  of  calls  a  year.  If  this  product  is  not  greater  than 
2,400,  and  the  station  is  located  hi  a  residence,  that  connection  is 
rated  as  a  residential  connection,  but  if  the  official  number  exceeds 
2,400,  the  business  rates  are  applied.  In  all  cases  where  business 
rates  are  applied  the  official  number  is  re-ascertained  the  second 
year  by  another  enumeration.  If  the  result  corresponds  with  the 
first  classification,  the  rating  is  made  permanent  for  five  years. 
After  this  period  a  new  classification  is  made  in  the  same  way  for 
another  quinquennial  period.  If  the  classification  of  the  second 
year  does  not  coincide  with  that  of  the  first,  the  station  is  tempo- 
rarily put  in  the  class  ascertained  last  and  the  operation  is  repeated 
the  next  year.  A  permanent  classification  is  then  made  by  averag- 
ing the  results  of  the  three  consecutive  annual  enumerations. 

The  Austrians  have  thus  worked  out  a  logical  method  of  rate- 
making  and  applied  it  consistently.  Its  effect  is  to  readjust  auto- 
matically the  price  of  telephone  service  to  the  local  conditions 
governing  its  use  by  the  subscribers  in  the  same  locality.  In  the 
actual  schedule  the  adjustment  of  rates  to  differences  in  the 
quantitative  use  of  the  service  is  made  only  roughly,  but  the 
method  employed  gives  the  subscriber  the  advantage  of  knowing 
with  certainty  for  at  least  one  year  in  advance  the  size  of  his  tele- 
phone bill.  Moreover,  the  adjustment  of  the  rate  to  the  actual 
utility  of  the  service  in  individual  cases  is  made  finer  by  the  em- 
ployment of  certain  external  indicia.  The  reasonableness  of  the 
various  rates  of  the  schedule,  however,  further  depends  upon 
the  accuracy  of  the  computations  on  which  the  rates  for  different 
classes  of  service  and  for  different  localities  were  actually  deter- 
mined. If  the  expenses  of  construction  and  operation  in  large  and 


406  PUBLIC  OWNERSHIP  OF  TELEPHONES 

small  exchange  systems  and  for  large  and  small  users  were  accu- 
rately calculated,  the  new  schedule  would  appear  to  respond 
tolerably  well  in  the  existing  technical  state  of  telephony  to  the 
peculiar  Austrian  needs.  Whether  the  general  level  of  the  new 
schedule  is  reasonable  or  not,  is,  of  course,  another  question. 

It  is  interesting  to  compare  these  new  Austrian  rates  with  those 
which  have  been  the  result  of  the  development  of  the  telephone 
business  in  the  United  States.  The  purpose  of  such  a  comparison 
is  not,  of  course,  to  consider  the  relative  height  of  the  telephone 
rates  in  the  two  countries,  but  only  their  relative  range. 

In  the  United  States  in  1902,  the  most  recent  date  at  which 
complete  statistics  of  telephone  operations  have  been  published,1 
the  average  gross  annual  revenue  per  telephone  in  operation  was 
$37.50;  per  message  1.712  cents.2  The  highest  general  level  of 
rates  in  any  one  state  was  in  New  York.  The  average  there  was 
$66.47,  and  4-541  cents  respectively.  The  lowest  was  in  Iowa. 
The  averages  there  were  $16.35  and  1.016  cents  respectively.  In 
New  York  the  number  of  large  cities  and  the  high  density  of 
population  make  necessary  the  maintenance  of  a  generally  high 
standard  of  service.  In  the  great  metropolis  itself  the  standard  of 
service  is  unquestionably  higher  than  anywhere  else  in  the  world. 
In  Iowa,  on  the  contrary,  the  nature  of  the  population  and  the 
character  of  their  pursuits  have  brought  about  a  more  extensive 
use  of  the  telephone  than  in  the  state  of  New  York,  but  upon  a 
simpler  scale  of  construction  and  a  less  exacting  standard  of  opera- 
tion. The  Iowa  farmer  who  buys  his  material  and  instruments 
from  a  Chicago  mail-order  house,  constructs  his  line  with  the  help 
of  the  trees  and  fences  along  the  route,  and  keeps  it  in  order  him- 
self, does  not  need  to  pay  much  for  annual  operating  charges. 

In  Austria  there  is  no  class  of  service  that  can  be  compared 
with  the  American  independent  farmers'  lines,  which  connect  the 
isolated  households  of  the  Middle  West  with  the  nearest  village. 
The  Austrian  peasant  lives  in  the  village,  and  has  no  use  for  tele- 

1  The  final  report  on  the  telegraphs  and  telephones  of  the  United  States  in  the 
year  1907  appeared  too  late  for  use  in  this  chapter. 

*  "Telephones  and  Telegraphs,  1902;"  Special  Report  of  the  Bureau  of  the  Cen- 
sus, Department  of  Commerce  and  Labor,  Washington,  1906,  Table  36. 


COMPARATIVE  TELEPHONE  RATES  407 

phone  service  of  that  sort.  Moreover,  the  comparison  is  further 
vitiated  by  the  fact  that  hi  Austria  rural  construction  is  not  so 
much  cheaper  than  urban  construction  as  is  the  case  in  America; 
for  in  Austria  the  standard  of  rural  construction,  on  account  of  the 
more  compact  construction  of  the  villages  and  the  preponderance 
of  long-distance  over  local  traffic,  must  be  higher  than  in  rural 
America.  Nor  do  the  average  charges  for  two  such  states  as  New 
York  and  Iowa  show  at  all  clearly  the  true  range  of  American 
telephone  rates,  striking  as  is  the  difference  between  the  two 
figures.  For  New  York,  too,  has  a  well  developed  rural  service, 
though  not  commensurate  in  extent  or  character  with  that  of 
Iowa.  A  more  instructive  basis  of  comparison  between  American 
and  Austrian  exchange  rates  is  afforded  by  the  schedule  of  rates 
established  by  some  one  American  company  which  is  in  a  position 
to  fix  the  prices  of  telephone  service  in  a  homogeneous  territory. 

The  company  which  best  answers  to  this  description  is  the  New 
England  Telephone  and  Telegraph  Company.  This  company  has 
always  enjoyed  a  practical  monopoly  of  an  important  territory. 
The  nature  of  the  demand,  and  the  conditions  under  which  the 
service  is  rendered  in  various  parts  of  its  territory  are,  however, 
sufficiently  heterogeneous  to  require  a  considerable  differentiation 
of  rates.  Moreover,  since  the  expiration  of  the  fundamental 
patents  on  the  Bell  telephone,  the  fear  of  competition  has  pro- 
vided an  incentive  for  a  considerable  amount  of  effort  so  to  adjust 
the  rates  as  to  meet  the  various  wants  of  its  patrons.  At  the  time 
the  new  Austrian  rates  were  established,  this  company  had  over 
300  different  rates  in  force  in  different  parts  of  New  England,1 
but  for  the  purposes  of  the  present  comparison,  a  reproduction 
of  the  schedules  in  force  in  the  largest  and  smallest  exchange 
systems  respectively  will  suffice. 

The  largest  exchange  system  is  that  of  the  metropolitan  and 
suburban  districts,  and  includes  all  of  Boston  and  its  vicinity. 
According  to  the  regular  published  rates  of  this  company  in  effect 

1  Communicated  by  the  N.  E.  T.  &  T.  Co.  An  attempt  in  1906  to  inaugurate 
competition  in  the  city  of  Boston  led  to  a  special  investigation  of  the  rates  of  this 
company  under  the  direction  of  the  Massachusetts  Highway  Commission,  result- 
ing in  October,  1910,  in  a  number  of  changes. 


408  PUBLIC  OWNERSHIP  OF  TELEPHONES 

on  January  i,  1908,  the  maximum  rate  in  this  district  was  one  of 
$162  for  a  direct  business  line,  entitling  the  subscriber  to  an 
unlimited  service.  In  fact,  the  number  of  outgoing  talks  which 
would  be  permitted  on  any  such  line  during  any  one  year  is 
limited,  although  no  statement  to  that  effect  appears  in  the  public 
schedule.  This  limit  is  placed  at  about  5,000  calls  per  annum  and 
is  not  in  itself  unreasonable.  The  effect  is  to  require  larger  users 
to  rent  additional  lines,  or  make  special  arrangements  with  the 
telephone  company.  In  New  York  City,  where  American  tele- 
phone rate  development  has  reached  its  highest  point,  telephone 
service  is  offered  in  any  quantity  at  rates  based  on  the  number  of 
messages,  or  rather  on  the  number  of  blocks  of  a  thousand  or  so 
messages  and  graduated  according  to  the  quantity  contracted  for. 
But  in  Boston  the  flat  rate  was  maintained  for  the  large  users  as 
late  as  1908,  and  the  interests  of  the  telephone  company,  as  well 
as  the  true  interests  of  the  large  users  themselves,  were  protected 
by  the  limitation  of  the  quantity  of  traffic  that  might  originate  on 
any  one  line.  For  business  users  who  did  not  care  for  an  unlimited 
service,  a  direct  line  with  a  limited  service  was  offered  at  $78,  for 
which  the  subscriber  was  entitled  to  1,000  outgoing  messages  a 
year.  For  all  calls  in  excess  of  that  number  he  was  required  to 
pay  three  cents  apiece,  and  each  talk  was  limited  to  five  minutes  in 
length.  Longer  conversations  were  charged  like  separate  calls. 
These  were  the  maximum  rates  in  force  in  the  territory  of  the  New 
England  Telephone  and  Telegraph  Company. 

The  minimum  rates  in  force  in  this  territory  were  those  sched- 
uled for  places  with  a  population  of  not  more  than  4,000.  The 
flat  rates  for  an  unlimited  service  in  these  places  were  as  follows : 

Line  Service 

Business  Residence 

Direct  $33  $27 

2  party  25  21 

6  or  more  party  21  18 

Mileage  charges  were  made  for  line  in  excess  of  one  mile  from  the 
central  office  for  business  connections  and  in  excess  of  two  miles 
for  residential  connections.  The  flat  rates  in  force  in  places  with 
4,000  to  10,000  inhabitants,  and  in  those  with  10,000  to  20,000, 


COMPARATIVE  TELEPHONE  RATES  409 

and  so  on,  were  arranged  on  the  same  basis.  The  maximum  rates  in 
each  higher  class  of  exchange  systems  steadily  rose,  but  the  mini- 
mum rates  were  kept  at  $18,  or  as  near  that  level  as  possible,  by  the 
introduction  of  less  and  less  desirable  classes  of  service,  such  as 
ten-party  lines,  or  services  limited  in  other  ways.  In  the  metro- 
politan district  itself  the  lowest  flat  rate  for  a  limited  service  was  for 
a  two-party  line  entitling  each  party  to  500  calls  at  $45  a  year. 
Additional  calls  were  charged  for  at  the  rate  of  five  cents  each.  There 
was  also,  however,  a  four-party  line  coin-box  service.  For  this  ser- 
vice residential  subscribers  were  charged  five  cents  a  call,  with  a 
minimum  of  $2.50  a  month  (50  calls)  or  $30  a  year.  This  was  the 
lowest  rate  in  the  metropolitan  district. 

Both  in  New  England  and  in  Austria  the  basis  of  charge  was  the 
flat  rate  graduated  according  to  the  size  of  the  exchange  system 
and  the  use  of  the  service  by  the  individual  subscriber.  The  effect 
of  the  New  England  rates  was  that  the  maximum  flat  rate  for  an 
unlimited  service  in  the  largest  exchange  area  was  nine  times  as 
great  as  the  minimum  rate  for  a  limited  service  in  the  smallest 
area,  and  that  the  range  between  the  rates  charged  to  the  largest 
and  smallest  users  in  the  metropolitan  area  itself  was  almost  as 
great.  In  Austria  the  maximum  rate  is  ten  times  as  great  as  the 
minimum  rate,  and  the  range  between  the  extremes  in  the  metro- 
polis is  almost  as  wide  as  in  New  England.  It  must  not  be  for- 
gotten, however,  that  neither  the  maximum  nor  the  minimum 
rates  are  paid  for  identical  services  in  the  two  countries.  If  allow- 
ance be  made  for  the  mileage  charges  and  the  limitation  of  the 
so-called  unlimited  service,  the  difference  between  the  range  of 
rates  in  the  two  countries  will  be  considerable. 

On  the  other  hand  the  difference  in  the  range  of  the  demand 
for  telephone  service  in  the  two  countries  is  also  considerable. 
The  party-line  service  especially  is  incapable  of  assuming  the 
same  importance  in  the  Austrian  as  in  the  New  England  telephone 
system.  Indeed,  outside  of  Scandinavia,  where  both  the  natural 
conditions  and  the  character  of  the  population  are  favorable  to 
the  extensive  use  of  party  lines,  that  kind  of  telephone  service  has 
never  become  popular  on  the  Continent  of  Europe.  It  is  a  matter 
of  taste,  as  well  as  one  of  circumstances.  Just  as  one  cannot  ex- 


410  PUBLIC  OWNERSHIP  OF  TELEPHONES 

plain  why  the  Englishman  drinks  tea  when  the  German  drinks 
coffee,  so  one  cannot  explain  why  the  American  tolerates  a  party 
line  and  the  Austrian  detests  it.  The  average  Austrian  or  German, — 
if  one  may  use  that  convenient  but  indefinable  term,  which  is  even 
less  applicable  in  Austria  and  Germany  than  in  the  land  where 
it  was  invented, —  the  average  Austrian  or  German,  then,  has  a 
particular  aversion  to  the  use  of  a  means  of  communication  which 
keeps  no  secrets.  Party  lines  on  the  American  plan  have  been 
tried  in  more  than  one  German-speaking  country,  but  without 
securing  a  wide  popularity.  The  people  do  not  fancy  such  a  ser- 
vice as  do  the  Americans. 

In  Austria  a  system  of  party-line  service  was  adopted  that 
excluded  all  the  other  parties  from  the  line  when  any  one  of  them 
was  conversing.  But  this  system  is  more  expensive  than  the 
ordinary  party  line,  and  the  economy  of  its  use  is  correspondingly 
diminished.  The  attempt  has  also  been  made  to  meet  local  needs 
for  smaller  quantities  of  service  than  can  be  economically  carried 
on  a  direct  line  by  the  use  of  the  automatic  sub-exchange.  This 
idea  has  been  developed  with  the  greatest  energy  in  Bavaria.1 
There  the  purpose  was  not  only  to  connect  groups  of  urban 
residential  subscribers  who,  having  little  use  for  telephone  connec- 
tion among  themselves,  possessed  the  common  desire  for  speedier 
and  more  convenient  communication  with  the  neighboring  urban 
exchange  area.  Such  a  system,  for  example,  is  admirably  adapted 
for  introduction  in  rural  call  offices.  Since  these  rural  users  can- 
not usually  afford  to  have  a  special  line  to  bring  them  in  direct 
connection  with  the  city,  there  is  ordinarily  no  alternative  but  to 
use  the  common  terminal  at  the  public  call  office.  To  connect 
themselves  with  this  terminal  by  special  local  lines  would  convert 
the  local  call  office  into  an  exchange,  and  thus  increase  the  ex- 
penses of  operation.  But  the  introduction  of  a  semi-automatic 
switchboard  at  the  terminal,  in  order  to  enable  local  users  who 
desire  a  special  service  to  make  their  own  connection  with  the 
trunk  line  running  to  the  city  exchange,  exactly  meets  the  exist- 
ing want. 

The  introduction  of  such  a  semi-automatic  system  is  cheaper 
1  Steidle:  Tarif  undTechnik  des  staotlichen  Ferns prechwesens  ;  Miinchen,  1906. 


COMPARATIVE  TELEPHONE  RATES  411 

than  the  construction  of  a  special  line  for  each  subscriber  from  the 
rural  village  to  the  city  exchange,  or  the  installation  and  operation 
of  a  manual  switchboard  at  the  rural  public  call  office.  It  is  also 
cheaper  than  a  completely  automatic  local  exchange,  which  would 
enable  the  parties  connected  to  it  to  converse  among  themselves 
without  the  intervention  of  an  operator  in  the  urban  exchange 
office.  Since  local  communication  is  not  wanted,  there  is  no  reason 
why  the  extra  expense  should  be  incurred.  The  difficulty  with  the 
system  in  its  present  state  of  technical  development  is  that  the 
service  derived  from  it  by  each  of  the  attached  subscribers  cannot 
be  separately  measured  with  accuracy,  and  hence  there  is  no 
satisfactory  basis  of  rates  for  such  service.  The  rates  ought  to 
take  into  consideration  the  time  the  common  trunk  to  the  city  is 
occupied  by  the  individual  subscriber  attached  to  the  semi- 
automatic terminal,  but  this  is  not  yet  technically  practicable 
except  at  a  disproportionately  great  expense.  Even  without  such 
a  semi-automatic  substitute  for  the  ordinary  party  line,  or  pri- 
vate branch  exchange,  the  Austrian  schedule  of  rates  as  a  whole  is 
tolerably  well  adapted  to  the  peculiar  Austrian  needs. 

The  objection  to  the  Austrian  schedule  of  rates  in  its  existing 
form  is  that  in  a  given  locality  the  graduation  of  rates  with  a  view 
to  the  varying  needs  of  different  members  of  the  same  class  of 
users  is  too  rough.  This  is  the  defect  of  any  system  of  charge  that 
is  based  solely  on  the  principle  of  flat  rates.  Such  a  system  needs 
to  be  supplemented  by  special  measured-service  rates,  as  is  actu- 
ally done  in  New  England  by  the  introduction  of  a  large  variety 
of  limited  flat-rate  services,  with  a  message  rate  for  calls  in  ex- 
cess of  the  stipulated  limit.  In  meeting  the  wants  of  small  users  the 
public  call  offices  are  capable  of  rendering  a  comparatively  greater 
service  in  Austria  than  in  America,  and  their  more  extensive  intro- 
duction, especially  of  the  pattern  known  as  automatic  pay  sta- 
tions, such  as  have  been  introduced  in  Germany  since  1900,* 
would  go  far  towards  filling  the  gap  in  the  existing  Austrian  ser- 
vice. Under  the  existing  conditions,  this  class  of  traffic  is  largely 
effected  through  the  stations  rented  by  the  numerous  small 
restaurant,  cafe  and  tobacco-store  keepers,  and  so  forth,  who 
1  Verwaltungsbericht  (Wiirttemberg),  1889,  p.  83. 


412  PUBLIC  OWNERSHIP  OF  TELEPHONES 

place  their  telephones  at  the  disposal  of  their  customers.  The  con- 
venience afforded  by  this  means,  which  is  in  reality  nothing  but 
an  advertising  device  on  the  part  of  the  proprietors  of  such  estab- 
lishments, is  not  conceivable  in  America,  because  the  custom  of 
patronizing  such  places  is  unknown  on  a  scale  at  all  comparable 
to  that  in  Germany  and  Austria.  The  more  compact  construction 
of  the  residential  portions  of  continental  cities  not  only  dimin- 
ishes the  total  demand  for  residential  service,  but  makes  it  easier 
to  meet  the  demand  that  exists  by  methods  that  would  be  far 
less  adequate  in  New  England. 

Nevertheless,  on  account  of  the  failure  to  introduce  a  more 
accurately  measured  service,  the  Austrian  reform  of  1907  cannot 
be  considered  so  successful  an  approximation  to  the  ideal  as  the 
proposed  German  reform.  Neither  the  Austrian  nor  the  German 
tariff  contemplates  so  wide  a  variety  of  service  as  that  of  the  New 
England  Telephone  and  Telegraph  Company.  On  the  other  hand, 
so  wide  a  variety  of  service  is  not  required.  In  practice,  the  more 
logical  German  and  the  more  numerous  New  England  rates  work 
out  to  about  the  same  result,  except  that  the  German,  unlike 
the  New  England  and  the  Austrian,  make  no  distinction  be- 
tween business  and  residential  subscribers.  The  discrimination 
between  business  and  residential  subscribers  in  favor  of  the  latter 
is  a  measure  calculated  to  increase  the  utility  of  the  telephone 
service  as  a  whole,  and  is  for  that  reason  a  desirable  feature  of  a 
system  of  rates.  Yet  on  the  whole,  when  consideration  is  taken 
of  the  fact  that  the  differentiation  of  the  demand  for  telephone 
service  began  later  and  has  proceeded  less  rapidly  in  Germany 
and  Austria  than  in  New  England,  the  subscribers  to  the  telephone 
services  of  the  German  and  Austrian  governments  have  as  little 
cause  to  be  dissatisfied  with  the  progress  that  has  been  made  in  the 
differentiation  of  the  rates  and  service  that  are  offered  them,  as 
have  the  New  Englanders  with  the  varieties  of  service  and  rates 
offered  to  them.  As  has  been  said  before,  this  statement  is  not 
intended  to  imply  that  the  general  level  of  rates  may  not  be  un- 
reasonable either  in  Germany,  or  in  Austria,  or  in  New  England,1 

1  For  detailed  discussions  of  the  reasonableness  of  the  rates  of  the  N.  E.  T.  &  T.  Co., 
cf.  Reports  of  the  Massachusetts  Highway  Commission,  1907,  1908,  1909. 


COMPARATIVE  TELEPHONE  RATES  413 

or  in  all  of  these  places.  The  point  simply  is  that  in  so  far  as  con- 
cerns the  adjustment  of  the  supply  of  telephone  service  to  the 
demand  in  these  different  places,  there  is  little  reason,  as  matters 
stood  in  the  year  1909,  for  commending  the  schedules  of  one  of 
these  managements  more  than  that  of  another. 

The  objections  which  apply  to  the  direct  comparison  of  the 
general  level  of  exchange  rates  in  different  telephone  systems 
apply  less  forcibly  to  a  similar  comparison  of  long-distance  rates. 
In  this  branch  of  the  industry  the  nature  of  the  service  rendered 
and  the  basis  of  the  charge  are  practically  the  same  under  all 
systems.  The  general  difficulties  of  making  such  a  comparison 
arising  especially  from  differences  in  the  cost  of  material  and  labor 
in  different  countries  remain,  however,  as  formidable  in  the  one 
case  as  in  the  other.  Nevertheless,  by  contrasting  comparative 
long-distance  rates  in  two  countries  with  comparative  rates  for 
another  service  rendered  under  equally  analogous  conditions, 
some  light  may  be  thrown  upon  the  relative  reasonableness  of  the 
long-distance  rates  themselves.  The  most  serviceable  European 
governmental  long-distance  rates  for  comparative  purposes  are 
those  of  the  new  schedule  proposed  in  1908  in  Germany.  These 
rates, are  in  all  probability  reasonable.  The  only  American  rates 
which  are  available  for  comparison  are  those  of  the  American 
Telephone  and  Telegraph  Company. 

These  rates  are  stated  in  the  printed  schedule  of  the  American 
Telephone  and  Telegraph  Company.  The  unit  of  time  for  a  long- 
distance conversation  is  three  minutes,  both  in  the  United  States 
and  in  Germany.  In  the  former  country  talks  of  longer  duration 
are  charged  at  about  one-third  of  the  rate  for  the  first  three  min- 
utes for  each  additional  minute.  In  the  latter  the  rate  for  the 
three-minute  period  is  not  subdivided.  In  both  countries  the  dis- 
tance is  the  decisive  factor  in  determining  the  rate.  At  the  bottom 
of  the  schedule  of  toll-rates  stands  the  local  public  call -office  rate. 
This  is  2.38  cents  in  Germany  and  five  cents  in  America,  or  about 
twice  as  much  as  in  Germany.  The  German  long-distance  rates 
work  out  to  from  .08  to  .12  cents  a  mile.  The  long-distance  rates 
of  the  American  Telegraph  and  Telephone  Company  are  fixed  on 
a  basis  of  .6  cents  a  mile.  Hence,  at  the  upper  end  of  the  sched- 


414  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ule,  a  message  in  America  costs  from  five  to  seven  and  one  half 
times  as  much  as  a  corresponding  message  in  Germany.  Thus  the 
divergence  between  the  American  and  the  German  rates  is  much 
greater  for  the  long-distance  than  for  the  local  traffic. 

Now,  there  seems  to  be  no  reason  from  the  technical  stand- 
point why  this  should  be  the  case.  The  difference  between  the 
prices  of  labor  and  of  materials  in  the  two  countries  does  not  vary 
according  to  the  length  of  the  line.  Ordinary  money  wages  in  the 
United  States  are  from  two  to  four  times  as  high  as  in  Germany, 
according  to  the  nature  of  the  occupation  and  the  locality.  The 
price  of  copper,  on  the  other  hand,  the  most  important  material 
in  the  construction  of  long-distance  telephone  lines,  is  higher  in 
Germany  than  in  America  by  the  cost  of  transportation  of  the 
raw  material  from  the  American  smelter  to  the  German  wire  man- 
ufacturer. The  difficulties  of  construction  do  not  increase,  as  the 
distances  increase,  more  sharply  in  America  than  in  Germany. 
Since  the  German  rates  in  their  latest  form  are  equally  remunera- 
tive throughout  the  entire  scale,  it  would  seem  that  the  American 
rates  are  either  unreasonably  low  for  short  distances,  or  unreason- 
ably high  for  long  distances.  The  mere  assertion,  taken  alone,  that 
the  price  of  a  long-distance  talk  between  New  York  and  Chicago 
costs  seven  times  as  much  as  a  similar  talk  in  Germany  means 
nothing  to  a  person  who  is  conversant  with  the  circumstances 
under  which  the  service  is  rendered  in  the  two  countries.  But  the 
fact  that  the  ratio  between  the  prices  of  such  a  talk  in  America 
and  in  Germany  is  more  than  three  times  as  great  as  that  between 
a  local  talk  in  the  two  countries  is  one  the  explanation  of  which 
would  be  desirable. 

In  order  to  distribute  traffic  as  evenly  as  possible  throughout 
the  twenty-four  hours  of  the  day  and  thus  economize  in  the  use 
of  costly  plant,  the  American  Telephone  and  Telegraph  Com- 
pany reduces  the  rates  at  night  to  one  half  of  their  level  by  day. 
The  German  telephone  administration,  with  the  same  object  in 
view,  reduces  the  night  rate  to  one  half  of  the  day  rate  for  talks 
which  are  held  regularly  at  the  same  time  between  the  same  per- 
sons. Otherwise,  the  day  rates  remain  in  force.  In  general,  night 
service  is  not  so  widely  extended  in  Germany  as  in  America,  chiefly 


COMPARATIVE  TELEPHONE  RATES  415 

because  the  use  of  the  telephone  for  other  than  business  purposes 
is  not  so  widely  extended.  The  further  extension  of  the  night 
service  is,  however,  a  part  of  the  regular  policy  of  the  German 
telephone  administration.1  Besides  the  reduced  subscription  rate 
for  night  service,  the  administration  seeks  to  promote  the  more 
even  diffusion  of  day  messages,  and  thus  the  more  economical  use 
of  its  plant,  by  the  encouragement  of  the  use  of  the  service  during 
the  hours  when  the  normal  demand  for  long-distance  connections 
slackens.  These  hours  are  before  9  A.  M.,  between  7  and  9  p.  M., 
and  between  12  and  3  p.  M.,  and  all  day  on  Sundays  and  holidays. 
The  busiest  hours  in  America  are  not  precisely  the  same,  but  the 
business  habits  of  the  Germans  throw  the  bulk  of  the  load  on  the 
wires  between  9  A.  M.  and  noon,  and  between  3  and  7  P.  M.  Con- 
sequently the  existing  plant  is  only  partially  utilized  during  the 
other  hours  of  the  day.2 

During  these  hours  the  use  of  the  long-distance  service  is  ex- 
tended to  all  the  places  of  lesser  commercial  importance  which 
are  not  permitted  to  call  for  long-distance  connections  during 
the  busy  hours.  The  effect  of  this  arrangement  is  to  restrict  to  a 
certain  extent  the  use  of  the  long-distance  plant  during  a  portion 
of  the  day,  but  at  the  same  time  to  secure  a  greater  economy  in 
its  use  than  is  secured  in  America.  The  Germans  act  on  the  theory 
that  telephone  users  have  no  more  right  to  expect  the  line  to  be 
waiting  for  them  whenever  they  desire  it  than  travelers  have  a 
right  to  expect  the  express  train  to  bide  their  will.  In  those 
places  where  the  demand  for  long-distance  communication  is 
heaviest,  the  most  abundant  supply  of  facilities  for  handling  the 
traffic  is  made  available,  and  in  those  where  the  demand  for  the 
service  is  more  irregular  and  uncertain,  the  casual  user  is  required 

1  Uninterrupted  night  service  was  first  introduced  into  the  Berlin  exchange  system 
in  1899  and  into  Cologne  in  the  following  year.  In  1906  uninterrupted  night  service 
existed  in  29  places  in  the  imperial  telephone  area,  and  partial  night  service  in  55. 
RPT  Ergebnisse,  1901-05,  p.  54.  In  Munich  and  Stuttgart  uninterrupted  night 
service  was  introduced  in  1001.  Verwaltungsbericht  (Wurttemberg),  1901,  p.  85. 
Elsewhere,  in  Wurtemberg  at  least,  local  exchange  connections  can  be  secured  be- 
tween 10  P.M.  and  6  A.  M.  for  any  length  of  time  for  20  pf.  (under  5  cents). 

8  Bestimmungen  fur  die  Benutzung  der  Anschlusse  an  staatliche  Ortstelephonnetze. 
Gcneraldirection  der  Kgl.  Bay.  Posten  und  Telegraphen.  Miinchen,  1906,  §26. 


4l6  PUBLIC  OWNERSHIP  OF  TELEPHONES 

to  arrange  for  his  conversation  during  one  of  the  hours  when  the 
use  of  the  line  is  less  generally  desired.  The  American  Telephone 
and  Telegraph  Company,  with  a  similar  object  in  view,  makes 
special  rates  for  the  regular  use  of  a  long-distance  line  at  hours 
when  it  is  not  so  much  in  demand  for  ordinary  traffic. 

The  danger  in  these  attempts  to  economize  in  the  use  of  the 
plant  is  that  they  will  be  overdone  and,  that  instead  of  true  econ- 
omy, an  inadequate  service  will  be  the  result.  The  German  author- 
ities possess  an  automatic  arrangement  for  warning  them  of  this 
danger.  They  permit  desired  connections  to  be  registered  in 
advance,  and  then  make  them  in  the  order  of  registration.  It  is 
provided,  however,  that  subscribers  whose  business  is  urgent,  may 
secure  priority  for  their  connections  by  paying  triple  the  ordinary 
rate.  This  is  the  "  urgent"  rate  which  has  been  previously  alluded 
to,  and  is  unquestionably  a  reasonable  as  well  as  a  useful  device. 
It  was  originated  in  the  telegraph  service  before  the  telephone  was 
invented,1  and  was  extended  to  the  latter  service  as  soon  as  the 
long-distance  traffic  began  to  develop.  This  urgent-rate  service  is 
also  available  in  Germany  to  long-distance  telephone  users  in 
places  of  secondary  commercial  importance  who  do  not  wish  to 
wait  for  their  connection  until  the  arrival  of  the  less  busy  hours.2 
In  general,  the  ratio  of  urgent  messages  to  ordinary  messages  is 
low.  In  Bavaria,  in  1907,  the  proportion  of  urgent  messages  was 
one  per  cent  on  the  long-distance  telephone,  and  three-fourths 
of  one  per  cent  on  the  telegraph  service.3  When  the  ratio  on  any 
line  rises,  this  fact  is  interpreted  by  the  telephone  administration 
as  an  indication  that  the  line  is  becoming  inadequate  to  the  de- 
mands that  are  made  upon  it,  and  that  additional  facilities  should 
be  arranged  for  at  once. 

By  these  means  the  German  telephone  administration  secures  a 
greater  economy  in  the  use  of  its  plant  than  does  the  American 
Telephone  and  Telegraph  Company.  The  American  pays  more 
than  does  the  German  for  the  traffic  over  the  longer  distances  for 

1  Schottle,  pp.  79-88. 

2  Statistischer  Bericht  iiber  den  Betrieb  der  Kgl  Bayer.  Posten  und  Telegraphen  im 
Verwaltungsjahre  1906,  p.  4. 

1  Communicated  by  the  Bavarian  telephone  authorities. 


COMPARATIVE  TELEPHONE  RATES  417 

the  sake  of  having  more  spare  plant  available  in  order  that  he  may 
effect  a  connection  as  promptly  as  possible  after  he  has  made  up 
his  mind  that  he  desires  it.  The  policy  of  the  German  telephone 
administration  encourages  the  user  to  plan  his  conversation  as  far 
as  possible  in  advance  and,  by  way  of  compensation,  effects  a  real 
saving  in  the  cost  of  the  service.  To  a  certain  extent  this  fact  con- 
tributes towards  the  explanation  of  the  discrepancy  between  the 
local  call-office  rates  and  the  long-distance  rates  in  America  as 
compared  with  Germany.  An  adequate  explanation,  however, 
could  be  obtained  only  by  special  examination  of  the  finances  of 
the  American  Telephone  and  Telegraph  Company. 

On  the  whole,  the  Germans  have  little  reason  for  dissatisfaction 
with  the  policy  pursued  by  their  telephone  administration  in 
regard  to  the  rates.  The  rates  are  not  wholly  above  criticism. 
Indeed,  it  is  not  in  the  nature  of  rates  for  a  growing  business, 
especially  for  a  business  in  which  the  progress  of  invention  is  con- 
stantly altering  the  conditions  under  which  it  is  carried  on,  ever 
to  be  wholly  above  criticism.  But  with  the  methods  employed 
by  the  German  telephone  administration  to  keep  its  rates  in  har- 
mony with  the  ever  changing  relations  between  the  demand  for 
and  the  supply  of  the  service,  the  German  telephone  users  are 
justifiably  contented.  When  a  portion  of  them  feel  their  interests 
injured  by  any  rate,  or  lack  of  a  rate,  they  complain,  and  they  are 
expected  to  complain.  Thus  these  complaints  are  in  reality 
nothing  but  the  evidence  that  a  part  of  the  administrative  organ- 
ism is  operating  as  it  is  intended  to  operate.  They  should  not  be 
confounded  with  genuine  expressions  of  dissatisfaction  over  the 
German  system  of  public  ownership  of  the  telephone  business. 
The  results  of  that  system,  so  far  as  concerns  the  rates  for  tele- 
phone service,  will  bear  comparison  with  the  results  that  have 
been  accomplished  anywhere. 


CHAPTER  XXIII 

COMPARATIVE  TELEPHONE  DEVELOPMENT 

THE  policy  of  public  ownership  of  telephones  is  now  established 
throughout  the  greater  part  of  the  Continent  of  Europe.  Only 
Spain  and  Denmark,  among  all  the  countries  which  originally 
declined  to  adopt  that  policy,  still  cling  to  the  alternative  of  pri- 
vate ownership.  The  transition  has  only  recently  been  completed 
in  Italy  and  is  still  under  way  in  the  Netherlands,  Norway  and 
Sweden.  In  Germany,  Switzerland,  France,  Belgium,  Austria 
and  Hungary,  however,  the  governmental  monopoly  of  the  tele- 
phone business  has  been  exclusive  for  more  than  a  decade  at  the 
least,  and  in  the  first  two  of  these  countries  for  a  whole  generation. 
What  are  the  results  which  have  been  accomplished  by  public 
enterprise  in  the  telephone  business? 

Writers  on  the  subject  of  public  and  private  ownership  of  such 
business  undertakings  as  the  telephone  are  wont  to  compare  the 
magnitudes  of  the  business  in  different  countries  under  different 
forms  of  ownership,  with  a  view  to  deducing  from  the  statistics 
of  development  under  each  of  the  two  forms  general  conclusions 
in  regard  to  their  respective  expediency.  Such  writers  argue  on 
the  assumption  that  the  merit  of  a  policy  of  ownership  is  indicated 
with  sufficient  accuracy  by  the  quantity  of  facilities  which  are 
created,  or  by  the  extent  to  which  they  are  used.  This  assumption 
is  not  altogether  accurate.  The  purpose  of  any  business  under- 
taking is  not  to  create  facilities,  but  to  satisfy  a  want.  The  crea- 
tion of  facilities  is  merely  a  means  to  that  end.  The  test  of  the 
efficiency  of  a  system  of  industrial  organization  is  not  the  quan- 
tity of  facilities  created.  Too  many  facilities  can  be  created  as 
well  as  too  few.  The  test  is  the  quantity  of  satisfaction  which  is 
derived  from  the  use  of  those  facilities.  And  in  passing  judgment 
upon  the  record  made  by  any  business  management,  the  critic 
must  consider  not  only  the  quantity  of  satisfaction  which  the 
undertaking  has  yielded,  but  also  the  extent  to  which  the  com- 


COMPARATIVE  TELEPHONE  DEVELOPMENT          419 

munity  in  which  the  service  was  rendered  was  capable  of  deriving 
satisfaction  from  it.  The  problem  therefore  is  not  a  physical  one, 
but  a  psychological  one. 

The  precise  measurement  of  the  satisfaction  which  a  community 
derives  from  such  a  service  as  the  telephone  is  wholly  impracti- 
cable. Statistics  are  not  capable  of  dealing  with  such  a  psycho- 
logical problem.  The  most  that  can  be  done  is  to  take  certain 
external  indicia  as  the  basis  of  measurement.  The  satisfaction 
which  different  individuals  in  the  same  community  derive  from 
the  telephone  service  is  roughly  indicated  by  the  amount  of 
money  which  they  are  willing  to  spend  for  it.  This  index,  how- 
ever, is  not  strictly  accurate,  because,  if  the  rates  should  be 
raised,  different  telephone  users  would  curtail  their  use  of  the 
service  to  an  unequal  extent,  according  to  the  various  degrees  of 
utility  which  they  set  upon  their  more  urgent  telephonic  communi- 
cations. The  satisfaction  which  different  communities  derive  from 
their  service  is  not  indicated  at  all  accurately  by  the  amounts  of 
money  which  they  spend  for  it.  For  the  general  level  of  prices, 
and  the  level  of  telephone  rates  in  particular,  may  be  variously 
affected  in  different  communities  by  a  variety  of  causes.  Wages, 
prices  of  materials,  expenses  for  rights  of  way,  and  so  forth,  vary 
greatly  from  place  to  place.  A  better  index  of  the  value  set  upon 
a  telephone  service  by  the  community  as  a  whole  is  the  use  that 
is  made  of  it.  A  fairly  accurate  measure  of  the  use  of  a  service  is 
the  number  of  talks  that  are  carried  on  in  a  given  period.  The 
measure  would  be  made  more  nearly  accurate  by  weighting  the 
talks  according  to  the  distance  covered  or  the  time  saved  by  them. 
This  degree  of  accuracy  unfortunately  is  wholly  impracticable. 
Even  the  total  number  of  talks  that  take  place  is  ascertained  with 
exactness  in  only  a  few  countries,  and  in  those  few  the  records  of 
local  talks  consist  largely  of  rough  estimates  until  within  the  last 
few  years.  There  remains  therefore  as  a  practicable  method  of 
measuring  the  utility  of  the  telephone  service  to  the  public  in  the 
various  countries  only  the  comparison  of  the  quantity  of  tele- 
phone equipment  in  use.  The  most  frequent  and,  on  the  whole, 
the  most  instructive  basis  of  comparison,  is  the  number  of  stations 
connected  with  public  exchange  systems.  The  ratio  between  the 


420  PUBLIC  OWNERSHIP  OF  TELEPHONES 

number  of  stations  and  the  number  of  the  population  in  any 
country  is  named  the  development. 

"A  judicious  man,"  says  Carlyle's  'crabbed  satirist/  "looks  at 
Statistics,  not  to  get  knowledge,  but  to  save  himself  from  having 
ignorance  foisted  upon  him."  Statistics  have  improved  somewhat 
since  Carlyle's  day.  Those  published  by  the  International  Bureau 
of  Telegraph  Administrations  at  Berne,  Switzerland,  are  carefully 
compiled  and  edited.  Yet  they  are  no  better  than  their  source, 
the  reports  of  the  various  governmental  administrations.  A  judi- 
cious man  will  still  be  careful  what  he  tries  to  prove  by  them. 

The  statistics  of  telephone  development  in  various  countries 
indicate  with  tolerable  accuracy  the  comparative  magnitudes 
of  the  business.  But  too  much  significance  must  not  be  attached 
to  them.  The  quantity  of  wire  per  telephone,  the  number  of 
messages  per  telephone,  the  cost  of  service  per  telephone,  the 
utility  of  the  service  per  telephone,  all  vary  to  different  extents 
from  country  to  country  according  as  the  exchange  systems  serve 
a  sparse  or  a  dense  population,  according  as  they  contain  a  large 
or  small  proportion  of  party  lines  or  private  branch  exchanges, 
according  as  the  rates  are  fixed  on  the  basis  of  the  number  of 
instruments  rented,  or  on  that  of  the  number  of  messages  sent, 
according  as  the  saving  of  time  and  expense  by  the  use  of  the 
telephone  is  great  or  small.  Moreover  the  method  of  comparison 
based  on  the  number  of  telephones  in  use  in  proportion  to  popu- 
lation fails  to  make  due  allowance  for  the  greater  utility  of  public 
call  offices  in  some  countries  than  in  others.  One  public  call  office 
easily  accessible  to  a  large  number  of  telephone  users,  and  af- 
fording them  the  particular  kind  of  service  they  desire,  really 
gives  more  satisfaction  to  the  community  than  several  private 
stations.  In  short,  the  statistics  of  telephone  development  can 
only  indicate  roughly  the  satisfaction  which  a  community  derives 
from  the  service.  Considered  apart  from  the  circumstances  under 
which  the  service  is  rendered,  they  indicate  nothing  as  to  the  com- 
parative efficiency  of  different  methods  of  industrial  organization. 

The  following  tables  show  the  telephone  development  of  the 
more  important  countries  on  the  Continent  of  Europe  at  two 
early  dates  in  the  history  of  the  industry: 


COMPARATIVE  TELEPHONE  DEVELOPMENT          421 

Country  Population  per  Telephone 

1885*  1895* 

Switzerland  560  129 

Norway  ) 

c       j    '  1,100  115 

Sweden   ) 

Denmark  1,280 

Belgium  1,620  682 

Luxemburg  1,740  160 

The  Netherlands  1,860  615 

Germany  3,050  397 

Italy  3,500  2,649 

France  5>25o  1,216 

Austria-    )  {  I>318 

12,200 
Hungary  J  {  2,545 

Spain  28,100 

In  1885  the  greatest  development  was  in  Switzerland.  Both 
the  high  degree  of  intelligence  of  the  inhabitants  and  the  natural 
characteristics  of  the  country  were  especially  favorable  to  the 
early  use  of  the  telephone.  Moreover  the  method  of  cooperation 
between  central  and  local  authorities  employed  by  the  Swiss 
telegraph  administration  was  well  adapted  to  make  the  new 
service  available  to  the  widest  circle  of  users  with  the  greatest 
rapidity.  The  other  telephone  systems  which  were  managed  by 
the  public  authorities  in  1885  were  those  of  Luxemburg,  Germany 
and  Spain.  The  Spanish  government  had  done  nothing  but 
establish  a  few  lines  for  official  purposes  only,  and  in  the  next  year 
handed  the  business  over  to  private  enterprise.  In  Germany  the 
exchange  systems  were  wholly  confined  to  the  large  cities.  They 
had  not  yet  penetrated  to  the  smaller  cities,  to  say  nothing  of  the 
rural  districts.  In  Luxemburg  the  government  only  went  into  the 
telephone  business  in  1885,  but  it  had  already  adopted  the  policy 
of  making  the  telephone  system  a  territorial  instead  of  an  urban 
institution,  and  was  extending  its  toll  lines  into  all  the  rural  vil- 
lages as  rapidly  as  possible. 

1  End  of  year.    A.  P.  T.,  1887,  pp.  673,  710. 

8  Beginning  of  year.     J.  T.,  1895,  p.  119. 

8  Sweden  only;  figures  for  Norway  not  available. 

4  Private  companies  only;  no  reports:  hence  figures  not  available. 


422  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  development  in  the  Scandinavian  and  North  Sea  countries, 
where  private  enterprise  held  sway,  was  inferior  to  that  in  Switzer- 
land, but  surpassed  that  in  Germany.  The  causes  of  the  rapid  de- 
velopment in  these  countries  under  private  enterprise  were  not  the 
same  in  the  Scandinavian  as  in  the  North  Sea  countries.  In 
the  former  the  policy  of  granting  free  play  to  local  initiative  was 
excellently  adapted  to  the  general  character  of  the  people  and  of 
the  land.  It  unquestionably  gave  an  impetus  to  the  early  develop- 
ment of  the  telephone  business  which  would  have  been  impossible 
under  any  form  of  centralized  administration.  In  Belgium  and  the 
Netherlands  the  comparatively  large  proportion  of  the  population 
living  in  cities  made  those  countries  a  peculiarly  favorable  field 
for  early  telephone  operations.  For  except  in  Scandinavia,  the 
telephone  exchange  found  its  first  and  for  some  years  its  only  field 
of  usefulness  on  the  Continent  of  Europe  in  the  large  cities  and 
among  the  commercial  classes. 

In  Switzerland  and  Germany  it  had  already  begun  to  be  ex- 
tended to  the  rural  districts,  —  at  first,  however,  not  in  the  form 
of  local  exchange  service,  but  as  a  substitute  for  the  telegraph. 
This  was  a  use  of  the  telephone  which  under  the  existing  circum- 
stances could  have  been  brought  about  only  by  the  public  authori- 
ties, since  the  telegraph  business  had  never  been  undertaken  by 
private  enterprise.  In  Italy,  France,  Austria  and  Hungary,  in 
1885  the  telephone  business  was  carried  on  by  private  enterprise. 
The  telephone  had  not  come  into  use  in  the  rural  districts  of  these 
countries,  and  in  the  large  cities  differences  in  the  demand  were 
of  much  less  importance  than  they  became  later  with  the  extension 
of  the  service  to  other  classes  of  the  community.  Under  these 
circumstances  a  comparison  of  the  urban  development  in  different 
countries  can  throw  considerable  light  on  the  effects  of  different 
policies  in  the  management  of  the  business. 

Of  the  three  great  capitals  of  Continental  Europe  in  1885,  the 
greatest  development  was  in  Berlin  (32.7  telephones  per  10,000 
inhabitants) ;  next  came  Paris  (14.2  per  10,000),  and  finally  Vienna 
(7.9  per  10,000). l  The  general  conditions  were  much  the  same  in 

1  A.  P.  T.,  1887,  p.  675.  Jan.  i,  1907,  the  development  in  Berlin  was  423,  in  Paris 
213,  and  in  Vienna  160  per  10,000  inhabitants. 


COMPARATIVE  TELEPHONE  DEVELOPMENT          423 

all  three  cities.  Each  possessed  a  pneumatic-tube  service  and  good 
local  postal  facilities.  Hence  it  is  reasonable  to  conclude  that  the 
city  in  which  the  public  authorities  had  the  enterprise  to  sup- 
ply the  service  from  the  beginning  as  a  public  undertaking  en- 
joyed the  most  extensive  telephone  system,  because  that  policy 
was  better  than  the  one  of  granting  a  concession,  under  terms  cal- 
culated to  protect  the  public  telegraph  revenues,  to  a  private 
company. 

A  factor  in  the  early  development  of  the  telephone  service  in  a 
number  of  cities  on  the  Continent  of  Europe  was  competition. 
Wherever  competition  prevailed,  the  result  was  a  temporary 
impetus  to  telephone  development.  The  managers  of  competitive 
undertakings  are  led  by  their  own  self-interest  to  strain  every 
nerve  to  bring  the  merits  of  their  respective  services  to  the  atten- 
tion of  possible  customers  in  advance  of  their  rivals.  The  effect 
of  these  campaigns  of  popular  education  is  that  the  public  is 
taught  to  appreciate  the  utility  of  the  proffered  service  more 
quickly  than  if  it  were  left  to  discover  the  merits  of  the  service 
for  itself.  Under  public  ownership,  on  the  other  hand,  the  officials 
in  charge  of  a  business  undertaking  consider  that  their  duty  is 
performed  when  they  have  placed  at  the  disposal  of  the  com- 
munity those  facilities  which  it  declares  it  wants.  They  do  not 
feel  that  they  should  attempt  to  teach  the  community  what  it 
ought  to  want.  That  task  is  confided  to  others.  Thus,  Stephan 
considered  it  an  unusual  exploit  when  he  secured  the  first  subscrib- 
ers to  the  Berlin  telephone  exchange  by  dint  of  personal  solicita- 
tion. In  general,  the  public  authorities  leave  the  community  to 
discover  the  utility  of  the  telephone  service  in  the  same  way  as 
that  in  which  it  discovers,  for  example,  the  utility  of  a  water  supply, 
and  trust  to  the  general  educational  system  and  standard  of 
intelligence  to  give  to  the  community  the  intellectual  alertness 
which  is  the  best  safeguard  of  a  wise  use  of  the  one  as  of  the  other. 
Consequently  competition,  while  it  lasts,  gives  an  exceptional 
impetus  to  telephone  development.  Competition  existed  tem- 
porarily in  the  early  period  of  the  telephone  industry  in  a  number 
of  the  leading  cities  of  Italy,  as  well  as  in  Brussels,  Chris tiania, 
Stockholm,  and  many  smaller  places  in  Scandinavia.  Unques- 


424  PUBLIC  OWNERSHIP  OF  TELEPHONES 

tionably  it  was  a  factor  in  the  early  progress  of  the  industry  in 
those  countries. 

A  decade  later,  however,  competition  except  in  Sweden  had 
become  a  thing  of  the  past.  Italy  dropped  back  into  the  place 
to  which  she  was  entitled  both  by  the  character  of  her  population 
and  by  that  of  her  legislation.  The  countries  in  which  others 
besides  the  commercial  classes  had  found  a  use  for  the  telephone 
were  far  in  the  lead,  and  for  the  lack  of  such  other  classes,  Belgium 
and  the  Netherlands  were  dropping  behind.  The  small  democratic 
countries  in  which  the  government  was  near  to  the  people,  and 
those  in  which  local  initiative  had  enjoyed  the  freest  play,  were 
the  ones  to  make  the  best  showing  at  this  stage  of  the  develop- 
ment of  the  industry.  But  the  period  of  the  superiority  of  the 
centralized  over  the  decentralized  management  was  approaching. 
In  Sweden  the  transition  was  already  made,  in  the  rest  of  Scandi- 
navia the  government  had  already  found  it  impossible  to  leave 
private  enterprise  and  local  initiative  altogether  uncontrolled. 
By  1895  private  enterprise  had  given  place  to  public  throughout 
Europe  except  in  Scandinavia  in  the  North,  and  in  Spain  and  Italy 
in  the  South.  In  Holland  also  private  enterprise  still  held  the  field, 
but  the  beginning  of  the  transition  was  imminent.  In  the  central 
portion  of  Western  Europe  the  gap  was  widening  between  the 
development  of  the  well-organized  telephone  system  of  Germany 
and  that  of  the  less  efficiently  organized  system  of  her  rival 
France.  The  city  of  Berlin  alone  possessed  more  telephones  than 
the  entire  French  republic. 

The  rapidity  with  which  the  telephone  could  be  introduced  by 
a  capable  and  enterprising  public  administration,  supported 
by  an  intelligent  and  democratic  community,  is  well  illustrated  by 
the  example  of  Switzerland.  Already,  before  the  abolition  of  the 
universal  flat  rate  by  the  Swiss  in  1889,  the  development  in  the 
urban  areas  where  the  exchange  service  gained  its  first  foothold 
was  greater  than  that  in  the  urban  areas  of  the  neighboring  Repub- 
lic of  France  a  score  of  years  later.  It  was  also  greater  than  the 
contemporaneous  urban  development  in  Germany,  although 
the  German  rate  (Mks.  150 =$3 5. 70)  was  not  much  higher  than 
the  Swiss  (Frs.  150 =$28.95).  The  actual  development  in  the 


COMPARATIVE  TELEPHONE  DEVELOPMENT          425 

three  cities  of  each  country  which  made  the  greatest  use  of  the 
telephone  at  that  time  was  as  follows:  l 

~..  n  .   j  .  .  No.  of      No.  of  Telephones 

City         Population       0  L    ,  .  7   ,.A 

Subscrs      per  100  inhabitants 

f  Geneva  68,000  1,572  2.3  % 

Switzerland    <  Zurich  7  5  ,000  1,109  1.5 

I  Basel  61,000  947  1.5 

f  Frankfort  103,000  593                     .57 

Germany        <  Hamburg  450,000  2,144  -47 

[  Leipzig  149,000  598  .40 

Public  enterprise  in  Switzerland  brought  the  telephone  into  more 
extensive  use  in  a  shorter  time  than  was  done  anywhere  else  in 
Europe  by  any  kind  of  enterprise. 

At  the  present  day  the  forces  the  operation  of  which  could  be 
observed  in  1895  have  worked  much  further.  The  telephone 
development  according  to  the  most  recent  available  statistics  is 
as  follows:2 

Development  per 

~  Subscribers    Public  pav  ^  .  ,  .  ,   ,  .  . 

Country  t.  ..  Total      100  inhabitants 

stations         stations 

1906 

)39>5°5    ) 

1  Sweden  971  3          1,306       136,294  2.57 

)  44,512    ) 

2  Denmark  63,227  2.44 

(  61,144 


1  Cochery  Rapport,  1889,  pp.  82,  83.  After  nearly  a  score  of  years  had  passed,  the 
efficiency  of  the  German  administrative  system  and  the  genius  of  her  organizers  had 
regained  much  of  the  ground  lost  at  the  start  to  the  more  favorably  situated  (i.  «., 
from  the  standpoint  of  the  demand  for  telephone  service)  Swiss.  The  development 
in  the  same  cities  on  Jan.  i,  1907,  was  as  follows: 


Population 

No.  of  subscr's 

Development 

Geneva 

111,000 

5,752 

5-15% 

Zurich 

170,000 

8,342 

4.60 

Basel 

121,000 

5,008 

4-15 

Frankfort 

334,900 

16,054 

4.78 

Hamburg 

803,000 

36,217 

4-SO 

Leipzig 

502,500 

14,608 

2.91 

*  J.  T.,  Statistique  G6ne>ale  de  la  Telephonic.  Annee  1906.  Berne,  1908. 
Figures  in  Roman  type  are  those  of  the  governmental  systems.  Figures  in  italics 
are  those  of  private  companies. 

8  Mutual  telephone  systems. 


426 


PUBLIC  OWNERSHIP  OF  TELEPHONES 


Subscribers' 
stations 

Public  pay    _,.    Develop  per 
...            r<?/a/      joo  ^nhab^tants 
stat^ons 

1000 

(  17,453 
(  25,120 

i,i59  ) 
i,4*5  i 

45,217 

2.03 

59,273 

1,107 

60,380 

1.82 

668,148 

3i,654 

699,802 

1.15 

2,527 

208 

2,735 

I.  II 

(     1,990 

356) 

j  2i,394l 

i53| 

37,476 

.66 

(  13,400 

PJ) 

30,448 

163 

30,661 

.42 

152,072 

9,442 

161,514 

.41 

58,558 

806 

59,364 

.22 

j  32,538  J 
I         40  i 

1,277 

33,855 

•17 

(    1,558 

126  | 

J           ,00 

34,660 

OOI  j 

37,245 

.11 

Country 

3  Norway 

4  Switzerland 

5  Germany 

6  Luxemburg 

7  The  Netherlands 

8  Belgium 

9  France 

10  Austria 

11  Hungary 

12  Italy 

(  34 

13  SpaiD  1 17 j"  rf  1     I7'743  '°9 

However,  the  telephone  is  only  one  of  a  number  of  means  of 
transmitting  the  communications  of  a  nation.  Before  attempting 
to  draw  any  conclusions  from  these  statistics  they  should  be  com- 
pared with  those  of  the  other  means  of  public  communication,  the 
governmental  postal  and  telegraph  services : 3 


Rank 

ace.        Country 

to  no.       7906 

oftels. 

1  Sweden 

2  Denmark 

3  Norway 

(1905) 

4  Switz'land 


Density 
of  popu- 
lation no. 
Per  km. 


12 
65 

7 
80 


No.  of 
letters.  &• 
p.  c.'s  de- 
livered 
Per  capita 

27.8 

47-9 

23.2 
74-5 


Rank 

Rank* 
ace. 

Rank 
ace. 

dec.  to 
letters 
&•  p.  c's. 

to 
ptd. 
mts. 

to 
tele- 
grams 

9 

8 

II 

3 

4 

8 

10 

9 

3 

i 

i 

2 

No.  of 
lels. 
del'd 
p.  loo 
cap. 

No.  of 
inter- 
urban 
talks 
p.  100 
cap. 

Rank 
ace.  to 
long  dis- 
tance 
talks 

38.2 

2O2 

6 

48.6 

316 

3 

81.8 

214 

4 

83.2 

211 

5 

1  Municipal  telephone  systems. 

8  One  station  was  in  the  hands  of  the  government;  the  others  were  owned  by  the 
private  company  which  has  a  monopoly  of  the  long-distance  business. 

8  Reichs-Post-  und  Telegraphen-Verwaltung:  Statistik  fur  das  Kalendarjahr  1906. 
4  Letters  and  postal  cards  delivered  by  governmental  postal  service. 
6  Printed  matter  delivered  by  governmental  postal  service. 
6  Exclusive  of  international  and  transit  telegrams. 


COMPARATIVE  TELEPHONE  DEVELOPMENT          427 

5  Germany      112  61.8  235  71.5  371  2 

6  Luxemburg    95  45.5  467  50.6  715  j 

7  Neth'lands    171  35.1  774  77.1  41  8 

8  Belgium        246  36.5  626  71.1  18  9 

9  France            73  32.0  851  108.2  45  7 

10  Austria  87  40.2  5  n  9  45.3  7  10 

11  Hungary  59  19.2  n  12  12  37.6  5  11 

12  Italy  116  n.o  12  10  10  38.7  5  12 

13  Spain 

(1905)  36       n.o       13         13         13        22.3       — l     — l 

When  all  the  modes  of  transmitting  intelligence  are  taken  into 
consideration,  Switzerland  stands  easily  ahead  of  all  the  other 
countries  on  the  Continent  of  Europe.  The  high  development  in 
Switzerland  is  stimulated  by  the  army  of  tourists  which  invades 
the  country  every  year.  Yet  without  this  exceptional  source  of 
traffic,  the  high  average  intelligence  of  the  Swiss,  their  democratic 
spirit  and  their  general  manner  of  life,  would  give  rise  to  a  greater 
use  of  the  facilities  for  transmitting  intelligence  than  in  countries 
of  lower  standards  of  living. 

Next  to  Switzerland  stand  the  Scandinavian  countries.  They 
are  also  the  countries  which  next  to  Switzerland  show  the  least 
development  of  social  inequality,  the  highest  average  intelligence 
and  the  most  even  diffusion  of  wealth.  The  spirit  of  true  demo- 
cracy is  perhaps  less  highly  developed  in  some  parts  of  Sweden 
than  in  Norway  and  Denmark.  Norway  particularly  is  a  land  of 
insignificant  industrial  development  and  of  an  exceptional  degree 
of  social  equality.  The  long  distances  in  that  country,  as  well  as 
in  Sweden,  have  stimulated  the  development  of  the  means  of  long- 
distance communication,  whereas  in  Denmark  the  shorter  dis- 
tances have  prevented  the  telegraphs  from  sharing  in  the  pros- 
perity which  has  come  to  the  telephone.  In  Sweden,  the  policy 
of  the  telegraph  administration  has  clearly  tended  to  favor  the 
long-distance  telephone  at  the  expense  of  the  telegraphs.  The  latter 
not  only  are  used  much  less  than  in  the  rest  of  Scandinavia,  but 
scarcely  more  than  in  Sweden  itself  a  quarter  of  a  century  ago. 
All  the  increase  of  long-distance  traffic  in  Sweden  since  the  intro- 
1  Private  company,  no  returns. 


428  PUBLIC  OWNERSHIP  OF  TELEPHONES 

duction  of  the  telephone  into  the  general  telegraph  system  of  the 
country  has  fallen  to  the  share  of  that  branch  of  the  service. 

None  of  these  countries,  however,  can  compare  with  Germany, 
or  the  little  principality  of  Luxemburg,  on  the  score  of  long-dis- 
tance telephone  traffic.  The  explanation  is  to  be  found  in  the  high 
development  of  that  which  may  be  called  the  short  long-distance 
traffic  in  those  two  countries.  This  is  the  traffic  between  rural 
villages  and  the  small  country  cities  which  serve  as  distributing 
centers  of  everything  which  the  surrounding  country  cannot  pro- 
duce for  itself,  from  general  merchandise  to  the  news  of  the 
world.  The  sort  of  intelligence  which  under  these  circumstances 
travels  by  means  of  the  local  rural  toll -lines  would  in  Scandinavia 
travel  to  a  much  greater  extent  over  long  private  party-lines,  and 
be  classified  as  local  exchange  service  rather  than  as  long-distance. 
The  German  telephone  administrations,  especially  since  1898, 
have  pursued  the  policy  of  stimulating  the  expansion  of  this  sort 
of  traffic  with  all  the  means  at  their  disposal.  They  are  now  trying 
to  accomplish  throughout  the  broad  German  Empire  what  the 
Luxemburg  administration  under  the  simple  conditions  which 
prevail  in  its  territory  was  able  to  bring  to  pass  in  a  comparatively 
short  interval. 

Since  the  beginnings  of  telephony  in  Luxemburg,  subscribers 
to  exchange  systems  have  been  allowed  to  use  the  toll-lines  for 
conversations  with  other  subscribers  anywhere  within  the  limits 
of  the  principality  without  further  charge.1  The  subscriber  is  not 
even  required  to  use  his  own  instrument,  but  may  call  another  sub- 
scriber from  any  public  call  office  without  further  charge.  Only 
in  case  the  user  of  a  public  call  office  is  not  a  subscriber  is  he  re- 
quired to  pay,  and  even  then  the  charge  is  lower  if  the  other  party 
to  the  conversation  is  a  subscriber.  Villages  in  which  there  is  no 
demand  for  a  local  exchange  system  are  encouraged  to  connect 
themselves  with  the  general  toll  system  of  the  grand  duchy  by 
the  establishment  of  village  call  offices.  For  these  they  are  required 
to  pay  the  same  mileage  charges  as  private  subscribers,  and  to 
provide  a  location  and  attendance  for  the  station.  An  unlimited 
service  is  then  rendered  for  an  annual  flat  rate  which  is  25  %  higher 

1  Tarifs  ItL,  vol.  ii,  pp.  230-236. 


COMPARATIVE  TELEPHONE  DEVELOPMENT          429 

than  that  charged  to  ordinary  private  subscribers.  In  a  small 
country  inhabited  by  a  homogeneous  and  independent  popula- 
tion, at  least  so  far  as  concerns  its  means  of  gaining  a  livelihood, 
these  conditions  were  admirably  adapted  to  promoting  an  early 
and  extensive  use  of  the  telephone.  The  Luxemburg  government 
showed  that  it  had  analyzed  the  needs  of  its  people  rightly  when 
it  introduced  the  telephone  in  1884  in  the  way  that  it  did. 

It  is  a  similar  extension  of  the  local  rural  urban  service  which 
during  the  later  period  of  the  telephone  industry  has  received  so 
much  attention  from  the  German  telephone  authorities.  The  pri- 
vate operating  companies  in  Denmark,  which  have  been  given 
monopolies  in  areas  in  general  not  unlike  Luxemburg  in  size  and 
population,  but  in  other  respects  more  favorable  to  telephone 
development,  have  also  built  up  a  considerable  business  of  the 
same  sort.  In  Denmark,  however,  the  commercial  toll  traffic  over 
longer  distances  has  not  attained  the  importance  of  the  similar 
class  of  traffic  in  Germany  on  account  of  the  absence  of  commercial 
centers  in  Denmark  outside  of  Copenhagen.  This  class  of  traffic 
in  Denmark  is  chiefly  in  the  hands  of  the  government,  which 
carries  on  the  toll  business  between  the  areas  of  the  different 
operating  companies,  and  amounts  to  about  one-seventh  of  the 
total.  In  Germany  the  proportion  must  be  more  considerable  than 
that.  Indeed,  the  German  demand  for  toll  connections  between 
large  commercial  centers  more  closely  resembles  the  similar 
demand  in  America  than  is  the  case  in  the  other  Continental 
European  countries.  For  Germany  has  a  greater  number  and  a 
wider  distribution  of  commercial  and  industrial  centers  than  has 
any  of  the  other  European  countries.  Not  only  in  Scandinavia,  but 
also  in  such  countries  as  France,  Austria  and  Hungary,  the  politi- 
cal capital  is  also  the  unchallenged  commercial  and  industrial  me- 
tropolis. 

Between  the  countries  already  mentioned  and  the  others  there 
is  a  wide  gap  in  the  extent  of  telephone  development.  When  all 
the  means  of  transmitting  intelligence  are  taken  into  considera- 
tion, those  countries  with  the  lowest  general  standard  of  living  — 
Hungary,  Italy  and  Spain  —  still  stand  far  below  the  others.  In 
Hungary,  where  the  telephone  has  been  a  governmental  undertak- 


430  PUBLIC  OWNERSHIP  OF  TELEPHONES 

ing  for  a  score  of  years,  the  development  is  somewhat  better  than 
in  Italy  and  Spain,  where  the  conduct  of  the  business  has  been 
mostly  in  private  hands.  However,  the  other  means  of  transmit- 
ting intelligence  are  also  somewhat  more  highly  developed  in 
Hungary,  although  equally  in  all  three  countries  in  public  hands. 

The  statistics  of  comparative  development  taken  by  themselves 
afford  no  basis  for  estimating  the  comparative  efficiency  of  differ- 
ent telephone  administrations,  or  the  comparative  wisdom  of  dif- 
ferent telephone  policies.  Too  many  factors  besides  the  policy  or 
the  capacity  of  the  administration  affect  the  growth  of  the  business. 
It  is  only  after  a  special  study  of  the  circumstances  in  each  partic- 
ular case  that  a  criticism  of  the  management  of  the  business  gains 
any  additional  force  by  the  quotation  of  statistics.  For  example, 
in  France  a  larger  proportion  of  the  increase  of  long-distance  traffic 
during  the  generation  since  the  invention  of  the  telephone  has 
fallen  to  the  telegraphs  than  in  the  other  European  countries.  The 
explanation  lies  in  the  fact  that  the  development  of  the  telegraph 
system  has  been  in  the  hands  of  a  centralized  management, 
whereas  the  responsibility  for  the  long-distance  telephone  system 
has  been  left  to  local  initiative.  This  policy  was  mistakenly  pur- 
sued long  after  the  stage  had  been  passed  in  which  the  advantages 
of  local  initiative  had  ceased  to  predominate  over  those  of  a  cen- 
tralized management.  In  this  case  a  quotation  of  the  statistics 
serves  to  give  clearness  to  a  general  statement  which  is  founded  on 
evidence  of  an  entirely  different  kind. 

The  greatest  European  telephone  system,  and  on  the  whole, 
when  all  the  circumstances  are  taken  into  consideration,  the  best, 
is  that  of  Germany.  It  is  also  the  one  which  can  with  the  most 
propriety  be  compared  to  the  telephone  system  of  the  United 
States.  The  extent  of  the  country,  the  size  and  economic  develop- 
ment of  its  population,  the  variety  and  importance  of  its  industry 
and  commerce,  all  combine  to  make  such  a  comparison  an  inter- 
esting undertaking.  The  most  recent  published  statistical  account 
of  the  telephone  industry  in  the  United  States  is  that  made  in  1902 
by  the  Bureau  of  the  Census.1  The  growth  of  the  industry  since 

1  Telephones  and  Telegraphs,  1902,  Department  of  Commerce  and  Labor,  Washing- 
ton, 1906.  A  fresh  enumeration  has  been  made  for  the  year  ending  Dec.  31,  1907, 


COMPARATIVE  TELEPHONE  DEVELOPMENT         431 

that  date  has  been  enormous  in  both  countries,  but  unfortunately 
the  annual  reports  of  American  telephone  companies  are  so  incom- 
plete as  to  be  worthless  for  purposes  of  comparison  with  the  Ger- 
man official  statistics. 

In  1902  there  was  one  telepnone  for  each  34  persons  in  the 
United  States,  and  one  for  each  128  in  the  German  Empire,  or, 
exclusive  of  public  call  offices  and  official  stations,  one  for  each 
148.  Thus  relatively  to  the  population,  telephones  were  about 
four  times  as  numerous  in  the  United  States  as  in  Germany. 

In  the  large  cities  in  America,  the  development  was  about  the 
same  as  in  the  country  as  a  whole.  In  New  York  the  number  of 
inhabitants  per  telephone  was  39,  Chicago  30,  Philadelphia  29, 
St.  Louis  31,  Boston  19,  Baltimore  35.  In  Germany  the  develop- 
ment was  much  greater  in  the  large  urban  areas  than  in  the  Empire 
as  a  whole.  The  figures  for  the  Berlin  postal  district  (which  com- 
prises the  metropolitan  and  suburban  area  known  as  Greater 
Berlin)  show  that  the  development  was  43  persons  per  telephone, 
in  the  Hamburg  postal  district  52,  that  of  Frankfort  77,  and  of 
Cologne  89.  In  the  city  of  Munich  the  development  was  39,  in 
Nuremberg  41,  and  in  Stuttgart  30.  The  Wurtemberg  capital  led 
the  Empire,  but  the  actual  urban  development  in  the  imperial 
postal  area  was  at  least  as  great  as  in  Bavaria,  if  allowance  be 
made  for  the  lower  development  in  the  suburban  and  rural  dis- 
tricts included  in  the  urban  postal  districts.  Thus  in  Germany  the 
development  in  the  large  cities  and  among  the  commercial  classes  ^ 
was  far  in  excess  of  that  in  the  Empire  as  a  whole,  and  not  very 
far  behind  that  in  America. 

In  the  rural  districts,  the  situation  was  the  reverse.  In  the 
United  States  the  development  in  the  state  of  New  York  as  a 
whole  was  greater  than  in  the  metropolis  alone,  being  one  tele- 
phone to  each  31  inhabitants.  The  same  was  true  of  Illinois,  where 
there  was  one  telephone  to  each  24  inhabitants.  But  in  such  a 
purely  agricultural  state  as  Iowa  the  development  was  greater 

but  only  the  preliminary  results  are  yet  available.  The  German  figures  are  taken 
from  the  annual  statistical  reports  of  the  three  German  telephone  administrations. 
Other  European  figures  are  taken  from  the  publications  of  the  International  Tele- 
graph Bureau  at  Berne. 


432  PUBLIC  OWNERSHIP  OF  TELEPHONES 

than  in  states  containing  a  large  industrial  population,  being  one 
telephone  to  19  inhabitants.  In  Germany,  on  the  other  hand,  in 
the  postal  district  of  Gumbinnen,  an  agricultural  district  in  the 
eastern  part  of  Prussia  on  the  shore  of  the  Baltic  Sea,  there  was 
only  one  telephone  to  each  634  inhabitants,  in  the  neighboring 
district  of  Koslin  one  to  469,  and  in  the  district  of  Oppeln  in 
Silesia  one  to  492  inhabitants. 

The  interesting  question  now  presents  itself:  to  what  extent 
was  the  low  development  of  telephony  in  the  German  rural  dis- 
tricts the  result  of  the  policy  of  the  telephone  administration,  par- 
ticularly of  the  long  maintenance  of  the  universal  flat  rate? 

Some  light  is  thrown  on  this  question  by  a  comparison  of  the 
development  in  certain  portions  of  rural  Germany  during  the 
period  the  single  flat  rate  was  in  force  with  that  in  adjacent  terri- 
tories in  which  the  rural  districts  enjoyed  lower  rates.  Thus  the 
flat  rate  in  Wurtemberg  for  a  decade  previous  to  the  going  into 
effect  of  the  reform  of  1899  m  the  imperial  telephone  area  was 
just  two  thirds  as  high  as  the  flat  rate  in  the  latter  area,  and  almost 
as  low  as  the  lowest  rate  introduced  by  the  reform  of  1899.  In  1902 
the  reformed  rates  in  both  Wurtemberg  and  the  imperial  telephone 
area  had  been  in  force  for  two  years.  The  telephone  development 
in  Wurtemberg  was  then  1:146;  in  the  adjoining  postal  districts 
of  the  imperial  area,  those  of  Baden  and  Hohenzollern,  it  was 
1:166;  in  the  districts  of  Karlsruhe  and  Konstanzit  was  1:184. 
In  Bavaria,  where  the  imperial  telephone  rates  had  also  been  in 
force  up  to  1899,  the  development  was  1:158.  These  districts 
resemble  each  other  somewhat  closely  in  economic  characteristics 
and  importance.  Another  comparison  can  be  made  between  the 
development  in  the  postal  district  Kiel,  which  includes  the  Danish 
portions  of  the  German  Empire  (Schleswig  and  a  part  of  Holstein) 
and  Denmark  itself.  In  1902  the  development  in  Kiel  was  indi- 
cated by  the  ratio  i :  167,  in  Denmark  i :  64.  After  allowing  for  the 
exceptional  development  in  the  city  of  Copenhagen,  Denmark  still 
displayed  a  use  of  the  telephone  in  local  exchange  operations  twice 
as  extensive  as  that  in  Kiel. 

Finally  the  development  in  the  districts  in  the  southwestern 
corner  of  the  empire  may  be  compared  with  that  in  Luxemburg. 


COMPARATIVE  TELEPHONE  DEVELOPMENT         433 

The  character  of  the  exchange  service  in  that  small  principality 
is  decidedly  modest,  but  well  adapted  to  the  needs  of  the  local 
population.  The  development  in  1902  was  indicated  by  the  ratio 
i :  113.  In  the  adjoining  German- postal  districts  of  Aachen,  Trier 
and  Metz  the  ratios  were  1:170, 1:376,  and  1:448,  respectively. 
These  figures  would  seem  to  show  that  the  rate-policy  of  the 
German  telephone  administration  had  greatly  retarded  the  intro- 
duction of  the  telephone  into  the  rural  districts.  In  the  adjoining 
districts  of  France,  however,  under  the  policy  of  local  initiative, 
the  rural  population  had  been  free  to  develop  its  local  service  to 
suit  the  local  needs.  The  figures  for  the  departments  adjoining 
Luxemburg  are  not  separately  available,  and  hence  a  separate 
computation  with  regard  to  the  most  comparable  districts  cannot 
be  made.  But  in  the  provincial  departments  as  a  whole  it  was 
about  i :  650.  Consequently  the  rural  development  at  this  period 
was  even  less  than  in  Germany.  It  is  clearly  impossible  to  prove 
very  much  with  the  statistics  of  development. 

In  Germany  the  need  for  telephone  exchange  service  did  not 
begin  to  be  felt  in  the  rural  districts  until  long  after  the  service 
was  well  established  in  the  large  cities.  The  same  circumstances 
which  prevented  the  agricultural  classes  from  desiring  exchange 
service  until  long  after  its  use  had  become  a  necessity  to  the  com- 
mercial classes  likewise  prevented  them  from  making  such  an 
extensive  use  of  it  after  they  had  once  made  a  beginning.  Thus  in 
Wurtemberg  as  late  as  1906  Stuttgart,  with  less  than  one  tenth  of 
the  total  population,  had  more  than  two  fifths  of  the  telephones 
of  the  kingdom.  The  same  conditions  prevailed  in  the  other  parts 
of  the  empire.  In  fact,  in  all  parts  of  Europe,  the  exchange  service 
in  the  rural  districts  developed  less  rapidly  than  in  the  large  cities. 
In  France,  in  1889,  when  the  government  took  over  the  complete 
control  of  the  telephone  business,  6,255  out  of  the  11,314  sub- 
scribers in  the  whole  country,  or  considerably  more  than  half, 
were  in  Paris  alone.  In  1902,  after  a  dozen  years  of  the  policy  of 
local  initiative,  41,602  out  of  94,350  subscribers,  or  44  %,  were  in 
Paris.  This  was  more  than  twice  the  proportion  of  German  sub- 
scribers which  were  to  be  found  in  Berlin  at  the  same  time.  Even 
in  Scandinavia,  where  the  rural  districts  have  felt  the  greatest 


434  PUBLIC  OWNERSHIP  OF  TELEPHONES 

need  for  a  telephone  service,  and  have  made  the  greatest  efforts 
to  supply  themselves  with  telephone  facilities,  the  same  phenom- 
enon can  be  observed.  On  January  i,  1907,  the  number  of  tele- 
phones per  hundred  inhabitants  in  Stockholm  was  15.55;  m  the 
rest  of  Sweden  1.71.  This  instance  is,  of  course,  exceptional,  on 
account  of  the  long  continuance  of  competition  in  the  Swedish 
capital,  but  the  situation  in  the  other  two  Scandinavian  countries 
is  normal.  In  Norway,  at  the  same  date  the  number  of  telephones 
per  hundred  inhabitants  outside  of  the  capital  was  1.53;  in  Chris- 
tiania  5.90.  In  Denmark  the  figures  are  for  the  rural  population 
1.48;  for  that  of  the  city  of  Copenhagen  6.20.  The  discrepancy 
between  metropolis  and  country  was  less  in  Scandinavia  than  in 
Germany,  but  the  fact  that  it  exists  at  all  shows  that  other  factors 
besides  rates  and  the  policies  of  the  telephone  administrations  in 
general  exercised  an  important  influence  over  telephone  develop- 
ment. 

Some  further  light  is  thrown  on  this  question  by  a  consideration 
of  the  nature  of  the  extraordinary  rural  development  in  such  an 
American  state  as  Iowa.  In  the  United  States  in  1902  the  census 
authorities  distinguished  three  classes  of  telephone  systems,  com- 
mercial systems,  mutual  systems,  and  independent  farmer  or  rural 
lines.  The  first  included  all  systems  operated  primarily  for  reve- 
nue. The  second  included  all  those  operated  through  a  voluntary 
arrangement  among  persons  deriving  benefit  from  the  service, 
revenue  being  merely  incidental  to  the  operation  of  the  system. 
The  third  included  all  lines  having  no  regular  exchange  or  central 
office.  These  lines  were  often  operated  under  conditions  similar 
to  those  controlling  the  mutual  systems.  In  1902  there  were  994 
mutual  systems  and  4,985  independent  farmer  lines  situated  in 
rural  districts,  that  is,  in  places  with  less  than  4,000  inhabitants. 
Of  the  total  of  3,157  commercial  systems  2,627  were  situated  in 
rural  districts.  Altogether  over  28  %  of  all  the  telephones  in  the 
United  States  were  situated  in  the  rural  districts. 

They  were  not,  however,  evenly  distributed  throughout  the 
rural  districts  of  the  United  States.  On  the  contrary,  these  rural 
systems  and  independent  farmer  lines  had  developed  almost  ex- 
clusively in  the  great  agricultural  region  of  the  Middle  West.  Of 


COMPARATIVE  TELEPHONE  DEVELOPMENT         435 

the  whole  number  of  independent  farmer  lines  83.7  %  were  found 
in  the  North  Central  division  of  states.  The  concentration  of  the 
mutual  systems  and  of  the  rural  commercial  systems  in  the  same 
division  of  states  was  almost  equally  marked.  Indeed,  18  %  of  all 
mutual  telephone  systems  were  situated  in  the  single  state  of  Iowa, 
and  more  than  half  of  all  the  mutual  systems  in  the  country  were 
situated  in  the  four  states  of  Iowa,  Illinois,  Indiana,  and  Missouri. 
This  exceptional  spread  of  the  use  of  the  telephone  in  the  Middle 
West  was  the  result  of  the  spirit  of  local  initiative  which  mani- 
fested itself  throughout  the  grain  region  of  the  Mississippi  Valley 
with  the  return  of  prosperity  after  the  period  of  hard  times  which 
ended  in  1896.  The  expiration  of  the  fundamental  Bell  patents  in 
1893  removed  the  greatest  obstacle  to  the  spontaneous  growth  of 
the  rural  telephone  service  as  soon  as  good  times  should  return. 
In  the  entire  period  prior  to  1896  only  37  mutual  telephone  sys- 
tems were  established  in  the  United  States.  In  the  four  years, 
1896  to  1899,  212  such  systems  were  established,  and  in  the  next 
three  years  181,  269,  and  295,  respectively.  These  figures  will  serve 
equally  well  as  an  index  of  the  growth  of  independent  farmer  lines 
and  of  rural  commercial  systems.  But  this  was  a  development 
which  was  confined  to  the  corn  and  wheat  belt.  In  the  cotton 
belt  the  rural  development  was  comparatively  trivial.  Whereas 
there  was  one  telephone  to  each  19  inhabitants  in  Iowa,  there  was 
only  one  to  each  134  in  Alabama. 

In  the  Southern  states,  however,  private  enterprise  and  local 
initiative  were  as  free  as  in  the  Middle  West.  The  numerous 
manufacturers  of  telephone  instruments  were  as  eager  to  place 
their  orders  in  one  locality  as  in  another.  There  was  nothing  in 
the  legislation  of  the  Southern  states  to  prevent  speculative  busi- 
ness men,  or  prospective  users  of  the  telephone,  from  adopting 
the  same  policy  towards  the  development  of  the  service  in  the 
South  as  was  adopted  in  the  Middle  West.  If  the  development  of 
the  rural  telephone  service  in  the  one  locality  failed  to  keep  pace 
with  that  in  the  other,  the  explanation  must  be  sought  in  circum- 
stances wholly  unrelated  to  the  management  of  the  telephone 
business.  In  other  words,  the  explanation  must  be  sought  not  in 
the  character  of  the  supply  but  in  that  of  the  demand. 


436  PUBLIC  OWNERSHIP  OF  TELEPHONES 

The  demand  for  telephone  service  in  the  rural  districts  of  Ger- 
many could  no  more  be  met  by  mutual  exchange  systems  and 
independent  farmer  lines  than  in  the  cotton  belt  of  the  United 
States.  In  Wurtemberg,  for  example,  where  the  German  rural 
telephone  policy  was  applied  to  best  advantage,  the  number  of 
telephones  per  capita  in  1902  was  a  trifle  less  than  in  Alabama. 
In  population  the  two  states  are  not  dissimilar,  Alabama  having 
in  1905  about  1.9  million  inhabitants  and  Wurtemberg  at  the  same 
date  about  2.3  million  inhabitants.  In  the  latter  state  there  were 
on  March  31, 1902,  altogether  178  exchange  systems.  Of  these  one 
had  over  5,000  subscribers,  two  between  seven  and  eight  hundred, 
eleven  between  one  and  five  hundred,  sixteen  between  fifty  and  one 
hundred,  and  all  the  others  —  148  in  number  —  had  50  subscrib- 
ers, or  less.  So  far,  the  telephone  facilities  of  Wurtemberg  were 
inferior  to  those  of  Alabama.  Besides  this  local  exchange  service, 
however,  Wurtemberg  possessed  a  rural-urban  toll  service  to 
which  Alabama  could  show  no  counterpart.  There  were  1,078 
telegraph  offices  open  to  the  public,  of  which  686  were  equipped 
with  telephone  instruments.  From  675  of  these  686  telegraph 
offices  with  telephone  equipment,  long-distance  telephone  connec- 
tion could  be  established  with  any  of  the  178  places  having  ex- 
change systems.  Moreover,  telephone  connection  could  be  estab- 
lished between  any  two  of  these  rural  offices  themselves.  The  effect 
of  these  rural  public  call  offices  was  to  extend  the  telephone  ser- 
vice in  the  form  in  which  it  was  chiefly  wanted  to  nearly  four  times 
as  many  places  as  enjoyed  a  local  exchange  service. 

This  effect  is  reflected  in  the  figures  of  the  average  number  of 
messages  per  telephone  instrument,  classed  as  local  and  toll 
respectively.  In  the  United  States  in  1902  the  average  number 
of  local  messages  per  telephone  in  the  commercial  exchange  sys- 
tems was  2,179;  the  average  number  of  long-distance  and  toll 
messages  was  54;  the  ratio  between  the  two  was  40  to  i.  The 
local  and  long-distance  messages  per  telephone  instrument  in 
mutual  exchange  systems  were  1,102  and  8  respectively;  the  ratio 
between  the  two  was  138  to  i.  In  the  same  year  in  Wurtemberg, 
the  number  of  local  messages  per  telephone  was  1,864;  the  num- 
ber of  long-distance  and  toll  messages  570.  The  ratio  between  the 


COMPARATIVE  TELEPHONE  DEVELOPMENT         437 

two  was  3.3  to  i.  These  figures  show  clearly  the  greater  propor- 
tion of  inter-urban  and  rural-urban  traffic  in  the  total  traffic  of 
Wurtemberg.  This  is  a  mode  of  employing  the  telephone  which 
would  hardly  have  been  possible  unless  both  telephones  and  tele- 
graphs had  been  under  the  same  centralized  management.  Without 
doubt  the  high  flat  rate  that  prevailed  throughout  most  of  Ger- 
many prior  to  1900  deterred  some  rural  villagers  from  subscribing 
to  the  telephone  service,  but  the  great  mass  of  them  were  pre- 
vented from  subscribing  by  circumstances  over  which  the  tele- 
phone administration  had  no  control.  The  most  important  reason 
why  the  German  rural  population  possessed  fewer  telephone 
exchange  facilities  in  1902  than  did  the  American  was  that  in 
Germany  there  was  less  use  for  that  kind  of  telephone  service  in 
the  rural  districts. 

The  wide  divergence  between  telephone  development  in  the 
United  States  and  in  Germany  as  a  whole  cannot  be  explained 
solely  on  the  same  ground.  The  lively  competition,  which  sprang 
up  in  most  parts  of  the  United  States  after  the  expiration  of  the 
fundamental  Bell  patents,  has  unquestionably  given  an  impetus 
to  the  later  growth  of  the  industry  which  would  have  been  lacking 
under  any  system  of  monopoly.  But  competition,  as  a  permanent 
condition  in  the  telephone  industry,  is  out  of  the  question.  Tem- 
porarily, without  doubt,  it  stimulates  the  increased  use  of  the 
telephone,  but  the  appearance  of  prosperity  which  is  thereby 
imparted  to  the  industry  is  specious.  Sooner  or  later,  in  one  form 
or  another,  the  community  must  pay  the  bill  for  this  forced  devel- 
opment. The  service  cannot  possibly  attain  its  greatest  utility 
until  competition  has  given  way  to  monopoly.  So  far  as  the 
greater  development  in  the  United  States  is  the  result  of  a  needless 
duplication  of  plant,  which  not  only  wastes  the  country's  resources 
but  prevents  the  service  from  attaining  its  greatest  utility,  it  is  a 
development  which  brings  no  corresponding  advantage  to  the 
country  as  a  whole. 

Apart  from  the  effects  of  competition,  the  unequal  use  of  the 
telephone  in  exchange  operations  in  the  two  countries  is  chiefly 
the  result  of  conditions  that  have  no  connection  with  the  character 
of  telephone  management.  These  conditions  on  the  contrary 


f  438  PUBLIC  OWNERSHIP  OF  TELEPHONES 

exert  their  influence  over  the  development  of  the  industry  in  the 
same  way,  though  to  different  degrees,  both  under  private  owner- 
ship in  the  United  States  and  under  public  ownership  in  Germany. 
On  January  i,  1907,  the  development  in  New  York  City  —  the 
greatest  American  exchange  system  —  was  almost  twice  that  in 
Berlin  —  the  greatest  German  exchange  system.  Yet  the  dis- 
crepancy was  not  so  great  between  these  two  cities  as  it  was 
between  different  parts  of  New  York  itself.  In  Manhattan  and 
the  Bronx  there  were  10.58  telephones  per  100  inhabitants, 
whereas  in  Brooklyn  there  were  4.51  and  in  the  borough  of  Queens 
and  Richmond  only  4.36. l  The  same  phenomenon  is  equally 
noticeable  in  Germany.  In  the  wealthy  city  of  Frankfort  there 
were  on  January  i,  1907,  4.78  telephones  per  100  inhabitants, 
whereas  in  Essen,  the  Pittsburg  of  Germany,  there  were  only  1.89. 
The  telephone  business  throughout  New  York  City  is  under  the 
same  management,  and  the  telephone  business  in  both  Frankfort 
and  Essen  is  under  the  same  management.  Presumably  the  New 
York  Telephone  Company  directs  its  affairs  with  the  same  energy 
and  sagacity  on  either  side  of  the  East  River,  and  the  imperial 
telephone  administration  may  be  expected  to  display  the  same 
vigor  on  the  Main  and  on  the  Ruhr. 

Under  any  form  of  management  the  extent  to  which  the  tele- 
phone service  will  be  used  is  limited  by  the  circumstances  under 
which  the  business  is  carried  on.  Under  like  conditions  an  enter- 
prising administration  will  unquestionably  build  up  a  bigger 
business  than  a  stupid  and  slothful  administration,  but  under 
unlike  conditions  equally  enterprising  administrations  cannot 
possibly  accomplish  the  same  results.  The  prime  significance  of 
the  statistics  of  comparative  telephone  development  in  Germany 
/  and  in  the  United  States  is  not  that  the  German  government  has 
managed  its  telephone  business  with  less  enterprise  and  sagacity 
than  has  been  displayed  by  the  private  companies  in  the  United 
States,  but  that  the  German  people  have  less  use  for  the  telephone 
than  have  the  Americans. 

1  Figures  communicated  by  the  N.  Y.  Tel.  Co. 


CONCLUSION 


CHAPTER  XXIV 

THE  ECONOMY   OF  PUBLIC  OWNERSHIP 

ACCORDING  to  the  theory  of  the  harmony  of  economic  interests 
the  best  security  for  the  production  of  those  commodities  which 
the  community  wants,  and  the  best  protection  against  the  produc- 
tion of  those  which  it  does  not  want,  is  to  leave  business  men  free 
to  engage  in  whatever  branch  of  production  they  choose.  For,  it  is 
argued,  the  test  of  a  want  that  ought  to  be  satisfied  is  the  willing- 
ness of  the  consumer  to  defray  the  cost  of  satisfying  it.  Hence  the 
desire  of  business  men  for  a  profit  is  a  sufficient  incentive  to  induce 
them  to  direct  the  production  of  those  commodities  that  are 
wanted  and  no  others.  By  permitting  business  men  to  compete 
freely  with  one  another  the  amount  of  these  profits  may  be  reduced 
to  a  minimum,  and  the  community  will  accordingly  be  supplied 
with  the  goods  it  desires  at  the  lowest  possible  prices.  The  pros- 
perity of  a  society  that  is  organized  in  accordance  with  this  theory 
depends,  therefore,  on  the  correctness  of  the  prediction  of  the 
society's  wants  by  business  men,  on  their  ability  promptly  and 
accurately  to  direct  the  productive  forces  of  the  community  out 
of  those  channels  where  they  are  not  wanted  and  into  those  where 
they  are  wanted,  and  on  free  competition  between  them. 

In  the  telephone  business  competition  is  a  failure.  Considered 
as  an  automatic  arrangement  for  maintaining  an  accurate  adjust- 
ment of  the  supply  of  telephone  facilities  to  the  demand,  it  easily 
gets  out  of  order.  So  long  as  it  remains  in  order  its  effect  is  to 
diminish  the  utility  of  the  service  to  render  which  telephone  facili- 
ties are  created.  For  a  while  it  is  capable  of  bringing  about  low 
rates  and  stimulating  a  rapid  development.  Sooner  or  later,  how- 
ever, the  self-interest  of  the  competitors  or  the  disillusionment 
of  the  public  authorities  will  cause  the  termination  of  competition 
and  the  substitution  of  a  regime  of  monopoly.  This  has  been  the 
result  everywhere  in  Europe  where  competition  has  once  existed, 
except  in  Stockholm,  and  in  Stockholm  the  bankruptcy  of  the 


442  PUBLIC  OWNERSHIP  OF  TELEPHONES 

private  company  or  the  purchase  of  its  business  by  the  government 
is  only  a  matter  of  time.  Competition  as  a  permanent  status  in  the 
telephone  business  is  neither  desirable  nor  possible. 

The  alternative  to  competition  is  monopoly.  But  under  a 
regime  of  monopoly  the  set  of  conditions  from  which  is  deduced 
the  theory  of  the  harmony  of  economic  interests  does  not  exist. 
The  same  motives  of  human  conduct  which,  under  a  regime  of  free 
competition,  are  relied  upon  to  secure  to  the  community  at  reason- 
able prices  the  supply  of  those  commodities  and  services  which 
are  wanted,  no  longer  produce  that  result.  There  is,  on  the  con- 
trary, a  direct  antagonism  of  interest  between  the  producer  and 
the  consumer.  The  latter,  which  is  the  community  itself  in  the 
case  of  a  business  of  general  public  importance,  must  make  a  spe- 
cial effort  of  some  kind  in  order  to  provide  a  substitute  for  the 
automatic  action  of  free  competition.  This  special  effort  may 
take  the  form  either  of  public  regulation  or  of  public  ownership 
of  the  business  in  question. 

The  problem  is  twofold.  First,  there  must  be  a  substitute  for 
the  action  of  free  competition  as  a  protector  against  inefficient 
management  and  the  uneconomical  employment  of  the  produc- 
tive forces  of  the  community.  Secondly,  there  must  be  some  means 
of  assuring  to  the  community  its  share  in  the  results  of  efficient 
management  and  economy  in  operation. 

Under  a  regime  of  free  competition,  the  machinery  of  produc- 
tion in  any  community  is  equipped  with  an  automatic  governor, 
to  use  a  simile  from  the  realm  of  mechanics,  which  tends  to  estab- 
lish and  maintain  a  tolerably  uniform  standard  of  efficiency  in 
the  management  of  businesses  of  general  public  importance 
throughout  that  community.  This  governor  is  the  phenomenon 
of  a  market  price.  The  market  price  for  any  commodity  or  ser- 
vice marks  the  limit  beyond  which  no  business  man  can  permit 
the  expenses  of  production  in  his  establishment  to  extend  and  yet 
continue  to  engage  in  that  business.  On  the  contrary,  his  entire 
profit  depends  upon  his  ability  to  put  out  his  product  for  less  than 
that  price.  The  wider  the  margin  between  his  expenses  of  pro- 
duction and  the  market  price  of  his  output,  the  greater  is  his 
profit.  The  existence  of  a  market  price  furnishes  an  ever  present 


ECONOMY  OF  PUBLIC  OWNERSHIP  443 

incentive  to  business  men  to  cut  down  their  expenses  of  produc- 
tion and  thus  eventually  to  dispose  of  their  product  at  less  than 
the  market  price.  Those  business  men  who  fail  to  hold  the  pace 
set  by  their  more  capable  rivals  must  lose  their  position  in  the 
market.  Hence  the  existence  of  a  market  price  acts  as  a  safeguard 
against  inefficient  management  and  automatically  promotes  the 
welfare  of  the  community  which  constitutes  the  market. 

Under  a  regime  of  private  monopoly  the  monopolist's  desire  for 
the  maximum  monopoly  profit  furnishes  the  same  incentive  for 
efficiency,  but  provides  the  community  with  no  security  that  it 
will  receive  any  share  in  the  advantages  of  good  management. 
The  monopolist  must  be  restrained  from  obtaining  an  exorbitant 
reward  for  his  services  to  the  community.  The  difficulty  of  mak- 
ing contracts  with  private  monopolists  which  will  reconcile  their 
private  interests  to  those  of  the  community,  which  will  secure 
the  maximum  utility  from  the  monopolized  undertakings  at  reason- 
able prices,  has  been  the  most  important  economic  ground  for  the 
public  ownership  of  such  undertakings. 

Under  a  regime  of  public  ownership,  however,  the  automatic 
governor  of  the  machinery  of  production,  which  is  provided  under 
either  regime  of  private  enterprise,  is  lacking.  Public  monopoly 
prices  may  be  established  by  legislative  enactment  or  by  executive 
decree.  In  either  case  the  administrators  of  the  monopoly  have 
no  pecuniary  interest  in  reducing  the  expenses  of  production,  for 
the  members  of  the  community  which  owns  the  undertaking  in 
question  cannot  themselves  direct  its  daily  management.  They 
have  their  own  businesses  to  attend  to  in  the  first  instance,  or, 
so  far  as  they  are  not  business  men,  have  their  livelihoods  to  gain 
in  other  ways.  They  can  only  delegate  their  powers  of  manage- 
ment to  particular  members  of  the  community.  The  latter  will 
necessarily  be  under  the  influence  of  different  motives  from  those 
which  actuate  the  heads  of  business  undertakings  under  a  regime 
of  private  enterprise.  Those  who  are  to  benefit  by  the  good  man- 
agement of  a  public  business  undertaking,  that  is,  those  who  are 
at  once  its  owners  and  its  patrons,  must  utilize  their  collective 
interest  to  fill  the  void  left  vacant  by  the  absence  of  pecuniary 
self-interest  on  the  part  of  the  public  business  managers,  and  to 


444  PUBLIC  OWNERSHIP  OF  TELEPHONES 

provide  a  fresh  stimulus  to  efficient  and  economical  management. 
For  it  is  only  by  a  stronger  interest  that  an  existing  interest  can 
be  overcome  or  a  failing  interest  revived.  But  the  stronger  interest 
is  of  no  avail  unless  there  be  an  adequate  opportunity  for  its 
expression.  Hence  the  problem  of  public  ownership  resolves  itself 
into  a  problem  of  public  organization. 

The  objection  to  intrusting  the  possession  of  a  business  of  great 
public  importance  to  the  hands  of  the  community  in  general 
instead  of  to  somebody  in  particular  is  that  the  collective  interest 
will  not  be  made  effective.  The  result  will  then  be  at  best  a  public 
management  characterized  by  hopeless  mediocrity.  The  funda- 
mental maxim  of  one  great  school  of  economic  thought  is  that  in 
fact  such  is  the  characteristic  of  the  governmental  management 
of  business  undertakings.1  The  attitude  of  this  school  is  neatly 
epitomized  by  the  remark  attributed  to  one  of  its  greatest  leaders, 
Herbert  Spencer:  "Why  should  we  hope  so  much  from  state 
agency  in  new  fields,  when  in  the  old  fields  it  has  bungled  so  mis- 
erably?" According  to  this  school,  private  agency  is  always  to  be 
chosen  for  the  conduct  of  business  monopolies,  wherever  it  is 
possible,  in  preference  to  that  of  the  state,  on  the  ground,  stated 
baldly,  that  it  is  the  lesser  of  the  two  evils. 

We  are  now  in  a  position  to  affirm  with  tolerable  certainty  in 
the  cases  of  at  least  three  countries  on  the  Continent  of  Europe 
that  state  agency  either  has  or  has  not  bungled  miserably.  The 
tests  of  the  efficiency  of  the  management  of  a  business  undertaking 
are  these:  is  the  demand  estimated  correctly  ?  and  is  the  supply 
adequate  in  quantity,  satisfactory  in  quality,  and  delivered  at  a 
reasonable  price  ?  The  evidence  on  which  the  response  to  the  first 
of  these  test  questions  must  be  founded  constitutes  itself  the 
response  to  the  second.  The  standard  of  judgment  as  to  the  ade- 
quacy and  efficiency  of  the  telephone  service  supplied  in  Germany, 
Switzerland,  and  France  and  as  to  the  reasonableness  of  the  rates, 
should  not  be  an  arbitrary  one,  however,  but  should  be  based  on 
the  requirements  of  telephone  users  in  the  three  countries  con- 
cerned. Each  consumer  is  entitled  to  judge  for  himself  what 

1  Paul  Leroy-Beaulieu:  UfLtat  moderne  et  ses  f auctions ;  3rd  edit.,  1900,  Introduc- 
tion, pp.  vi-vii. 


ECONOMY  OF  PUBLIC  OWNERSHIP  445 

manner  of  service  is  a  satisfactory  equivalent  for  a  given  expen- 
diture. The  task  of  the  disinterested  critic  should  be  confined  to 
supplementing  the  judgments  of  the  users,  in  so  far  as  public 
opinion  in  a  community  may  be  ill  informed  in  regard  to  the 
character  of  service  which  is  supplied  in  other  communities  under 
similar  conditions. 

Applying  this  standard  of  judgment,  it  appears  that  the  German 
and  Swiss  telephone  authorities  have  maintained  a  telephone 
service  that  has  been  both  adequate  in  quantity  and  satisfactory 
in  quality.  The  Germans  originally  established  a  schedule  of  rates 
that  was  reasonable  under  the  existing  conditions,  and  although 
for  a  period,  in  consequence  of  the  subsequent  changes  in  the 
character  of  the  demand,  that  original  schedule  fell  out  of  accord 
with  altered  conditions,  it  was  ultimately  subjected  to  a  succes- 
sion of  reforms,  designed  to  readjust  the  rates  to  the  new  condi- 
tions and  on  a  basis  calculated  to  enable  the  community  to  derive 
the  maximum  utility  from  its  telephone  system.  The  Swiss  secured 
a  wider  and  more  prompt  utilization  of  the  telephone  than  oc- 
curred anywhere  else  on  earth,  led  the  way  in  the  substitution 
of  measured  service  for  unlimited  service,  and  have  ever  operated 
a  technically  sound  system  at  rock  bottom  rates.  The  French  tele- 
phone authorities,  on  the  other  hand,  have  not  succeeded  in  main- 
taining either  an  adequate  quantity  or  a  satisfactory  quality  of 
telephone  service,  nor  in  establishing  their  rates  on  a  reasonable 
basis.  In  short,  we  find  that  on  the  basis  of  the  experience  of  the 
continental  European  governments  in  the  conduct  of  the  telephone 
business,  no  general  statement  can  be  made  concerning  the  effi- 
ciency of  state  agency  in  the  conduct  of  business  undertakings. 
The  nearest  approach  to  a  general  statement  that  can  be  made  is 
that  in  some  countries  public  enterprise  has  bungled  miserably 
in  the  telephone  business,  and  that  in  others  public  enterprise  has 
not  bungled  at  all. 

The  explanation  of  these  contradictory  results  in  neighboring 
countries  is  twofold.  It  lies  partly  in  the  different  temperaments 
of  the  various  peoples  and  partly  in  the  different  circumstances 
under  which  public  authorities  in  the  various  countries  have  been 
called  on  to  conduct  the  telephone  business. 


446  PUBLIC  OWNERSHIP  OF  TELEPHONES 

Walter  Bagehot,  in  one  of  his  political  essays,  has  remarked 
that  the  men  of  Massachusetts  could  work  any  constitution. 
The  men  of  Massachusetts  themselves  would  scarcely  claim  such 
generous  praise  as  their  due,  but  all  will  agree  that  there  is  a 
measure  of  truth  underlying  Bagehot's  statement.  Some  peoples 
possess  to  a  greater  degree  than  others  the  capacity  for  collective 
action.  An  excellent  illustration  of  this  dictum  is  furnished  by  the 
leading  Teutonic  and  Romance  peoples,  the  Germans  and  the 
French.  The  Germans  are  unquestionably  endowed  with  a  greater 
power  of  cooperation  in  the  pursuit  of  common  ends  than  are  the 
French.  The  stranger  who  has  been  among  the  two  peoples,  even 
for  a  short  time,  cannot  fail  to  observe  the  difference  in  their 
attitudes  toward  the  conduct  of  public  affairs.  The  German 
possesses  an  instinct  of  order  and  discipline  which  the  Frenchman 
lacks.  In  his  relations  towards  the  public  power,  the  former  dis- 
plays a  respect  for  established  authority,  and  habitually  regards 
it  as  one  of  the  most  indispensable  agents  in  the  promotion  of  the 
general  welfare.  The  Frenchman,  on  the  other  hand,  is  distrustful 
of  the  effects  of  governmental  action,  and  has  a  greater  regard  for 
personal  liberty  when  it  conflicts  with  the  impersonal  interest  of 
the  community.  The  civil  service  is  held  in  greater  esteem  in 
Germany  than  in  France;  the  public  official  is  regarded  less  as  a 
necessary  evil  and  more  as  a  useful  collaborator  with  the  private 
citizen  in  his  task  of  gaining  a  livelihood.  The  civil  service  in 
Germany  offers  an  attractive  career  to  men  of  high  ability.  In 
France  such  men  prefer  the  freedom  of  private  life.  The  Germans 
are  thus  able  to  maintain  a  higher  standard  of  ability  in  their 
public  administration,  and  the  private  citizen  who  is  called  upon 
to  assist  in  the  work  of  public  business  management  takes  more 
pride  in  performing  his  part  conscientiously  and  well. 

The  differences  in  the  national  characters  of  the  two  peoples 
are  reflected  not  only  in  their  conduct  of  public  business  under- 
takings but  in  all  their  economic  activities.  The  French  are  a 
frugal  race,  and  well  deserve  their  title  of  bankers  of  Europe.  But 
they  are  not  as  enterprising  as  are  the  Germans.  The  French  have 
had  since  1870  the  same  opportunity  as  the  Germans  to  conquer 
foreign  markets  for  the  products  of  the  new  industries  of  our  time. 


ECONOMY  OF  PUBLIC  OWNERSHIP  447 

But  they  have  not  gained  their  share  of  the  new  business.  While 
French  foreign  trade  has  increased  slowly,  German  foreign  trade 
has  increased  by  leaps  and  bounds.  The  German  merchant  marine 
almost  threatens  the  supremacy  of  the  English  in  the  carrying 
trade  of  the  world.  The  French  barely  holds  its  own. 

The  contrast  between  the  Frenchman's  conservative  content- 
ment with  his  environment  and  the  restless  progressiveness  of  the 
German  extends  to  all  the  economic  activity  on  a  large  scale  that 
has  characterized  the  industrial  development  of  recent  years.  In 
the  fine  arts  the  French  more  than  hold  their  own.  But  in  the 
realm  of  large  scale  industry,  where  capacity  for  collective  organi- 
zation rather  than  individual  cleverness  is  the  watchword  of  suc- 
cess, the  French  lag  far  behind.  It  is  only  the  exceptional  private 
industrial  undertaking  in  France  that  can  take  business  away 
from  the  German  in  a  neutral  market.  In  general,  large-scale  pri- 
vate business  organizations  are  not  managed  in  France  with  the 
efficiency  and  enterprise  that  is  displayed  in  Germany.  And  if  the 
French  cannot  vie  with  the  Germans  in  the  conduct  of  private 
business  undertakings  that  require  an  efficient  organization  as  the 
condition  of  success,  they  can  hardly  be  expected  to  work  their 
public  business  undertakings  as  well  as  do  the  Germans,  even  if 
they  could  organize  them  as  well. 

As  a  matter  of  fact,  the  conduct  of  public  business  is  not  so  well 
organized  in  France  as  in  Germany.  As  a  result  of  the  superior 
capacity  of  the  Germans  for  collective  action  and  of  their  more 
highly  developed  taste  for  public  in  preference  to  private  enter- 
prise when  there  is  a  choice  between  the  two,  they  have  gradually 
built  up  a  highly  efficient  machinery  for  the  conduct  of  public 
business  undertakings.  The  problem  of  public  ownership  has  been 
solved  by  the  creation  of  a  double  organization.  The  community 
in  its  capacity  of  owner  of  business  undertakings  possesses  a 
political  organization,  the  purpose  of  which  is  to  lay  down  the 
general  rules  for  the  conduct  of  the  business  and  to  supervise  the 
general  results  of  operation.  This  purpose  is  accomplished  by 
means  of  the  control  over  rates  and  over  the  budget.  The  com- 
munity in  its  capacity  of  patron  for  its  own  business  undertakings 
possesses  an  economic  organization,  the  purpose  of  which  is  to 


448  PUBLIC  OWNERSHIP  OF  TELEPHONES 

take  part  in  the  daily  work  of  management  and  to  insure  the  sat- 
isfaction of  individual  wants. 

Each  of  these  organizations  serves  as  a  check  on  the  other.  The 
political  organization  prevents  the  sacrifice  of  the  interests  of  the 
owners,  that  is,  the  community  as  a  whole,  to  those  of  any  portion 
of  the  community  which  may  be  especially  concerned  in  its  opera- 
tion. The  economic  organization  prevents  the  sacrifice  of  the  in- 
terests of  the  patrons  to  those  of  its  owners.  Both  organizations 
act  as  spurs  to  the  management,  inciting  it  to  a  more  economical 
and  a  more  efficient  conduct  of  affairs.  The  managers  in  their  turn 
are  endowed  with  a  public  trust  and  accorded  a  measure  of  public 
esteem  corresponding  to  the  extent  of  their  responsibility.  For 
the  single  motive  of  pecuniary  self-interest  the  Germans  have  sub- 
stituted an  elaborate  mechanism  of  checks  and  balances  for  the 
purpose  of  regulating  the  machinery  of  production.  At  bottom 
the  German  system  of  public  business  organization  rests  also  on 
the  pecuniary  self-interest  of  the  individual  members  of  the  com- 
munity. But  by  the  substitution  of  public  business  enterprise  for 
private  business  enterprise,  they  have  found  a  means  of  reconciling 
the  interests  of  producers  and  consumers  in  the  conduct  of  those 
businesses  in  which  the  policy  of  free  competition  is  undesirable  or 
unavailable. 

In  France  the  attempt  has  been  less  successful  so  to  organize 
the  representation  of  the  economic  interests  of  the  community  as 
to  provide  a  substitute  for  the  self-interest  of  a  special  class  of 
business  men  in  the  operation  of  the  machinery  of  production. 
The  French  mechanism  has  been  constructed  on  the  same  prin- 
ciples as  the  German,  but  its  structure  is  less  complete.  In  the 
first  place,  the  chambers  of  commerce  and  the  chambers  of  arts 
and  manufactures  have  never  enjoyed  the  power  of  initiative 
displayed  by  the  German  chambers,  nor  do  they  represent  to  the 
same  degree  the  several  interests  of  all  classes  of  the  community. 
They  do  not  act  together  as  do  the  Germans,  nor  do  they  act  at  all 
except  upon  the  invitation  of  the  central  administrative  authori- 
ties. The  presidents  of  the  several  chambers  hold  an  annual  meet- 
ing, but  they  do  not  seem  to  be  able  to  initiate  collective  action. 
Instead  of  bringing  an  effective  pressure  to  bear  on  the  adminis- 


ECONOMY  OF  PUBLIC  OWNERSHIP  449 

trative  authorities  to  secure  positive  action  in  desirable  directions 
or  of  offering  an  effective  resistance  to  the  pursuit  of  unsatisfactory 
policies  in  the  conduct  of  affairs,  they  have  drifted  helplessly 
along  in  the  current  created  by  other  forces  more  powerful  than 
their  own.  The  check  that  should  have  been  exercised  by  the  eco- 
nomic organization  of  the  community  in  order  to  protect  the 
interests  of  consumers  has  been  too  feeble. 

The  result  of  the  weakness  of  the  organized  representation  of 
the  community  in  its  capacity  of  patron  of  the  telephone  service 
has  been  that  the  other  check  on  the  management  of  the  telephone 
undertaking  has  had  to  bear  too  large  a  proportion  of  the  respon- 
sibility for  good  management,  and  has  possessed  too  large  a  mea- 
sure of  unbalanced  power.  This  derangement  of  the  mechanism 
of  checks  and  balances  is  intensified  by  the  peculiar  political  and 
financial  conditions  in  France.  In  addition,  a  number  of  vicious 
administrative  practices  have  been  permitted  to  grow  up  in  the 
conduct  of  telephone  affairs.  Hence  the  failure  of  the  French  to 
make  a  better  showing  in  comparison  with  the  Germans  is  not 
difficult  to  understand. 

The  first  of  the  vicious  administrative  practices  is  the  method 
of  accounting.  Since  no  accurate  account  is  kept  of  the  quanti- 
ties of  capital  invested  in  the  various  public  undertakings,  it  is 
impossible  to  ascertain  whether  the  proceeds  of  operation  of  pre- 
sumably reproductive  undertakings  are  really  sufficient  to  defray 
the  interest  and  amortization  of  their  capitals.  An  apparent  sur- 
plus of  current  receipts  over  operating  expenditures  might  be 
easily  wiped  out  by  the  unknown  fixed  charges.  Valuable  plant  in 
a  progressive  industry  like  the  telephone  might  be  depreciating 
with  greater  rapidity  than  the  capital  itself  was  being  recouped. 
The  only  certain  way  of  avoiding  such  a  disaster  is  to  pay  for  all 
fresh  construction  as  well  as  for  maintenance  out  of  current  re- 
ceipts. By  the  adoption  of  such  a  policy  the  government  is  sure  of 
its  revenues,  whatever  may  be  the  true  relation  between  the  cost 
of  construction  and  the  earning  capacity  of  the  undertaking.  This 
is  in  fact  what  the  French  government  has  done  in  its  telephone 
business,  in  so  far  as  it  has  been  forced  to  supplement  the  ad- 
vances made  by  local  authorities.  In  a  stationary  business  such  a 


450  PUBLIC  OWNERSHIP  OF  TELEPHONES 

policy  would  be  a  sound  one,  but  in  a  rapidly  growing  business  its 
effect  is  to  limit  the  expansion  of  the  business  by  the  amount  of 
surplus  earnings  that  can  be  squeezed  from  present  patrons.  At 
the  same  time  the  managers  of  the  undertaking  are  incited  to 
make  plant  last  as  long  as  possible,  when  true  economy  would 
often  require  its  replacement  before  being  worn  out  by  more  effi- 
cient apparatus.  In  a  growing  business  such  a  policy  tends  to 
prevent  the  construction  of  an  adequate  supply  of  facilities,  the 
maintenance  of  a  satisfactory  standard  of  service,  and  the  estab- 
lishment of  rates  on  a  reasonable  basis. 

The  second  of  the  vicious  administrative  practices  is  the  failure 
to  render  an  annual  report  of  the  year's  operations.  Millerand's 
public  letter  of  May  i,  1900,  is  the  only  official  report  that  has  ever 
been  made  since  the  French  government  took  over  the  exclusive 
management  of  the  telephone  business.  The  result  is  that  the 
parliamentary  control  over  the  budget  is  ineffective  as  a  check  on 
the  conduct  of  telephone  affairs.  The  presumption  that  the  de- 
puties will  be  able  to  probe  the  details  of  the  management  of  the 
business  is  not  verified  by  experience.  They  do  not  have  sufficient 
information  on  which  to  be  able  to  question  the  responsible  minis- 
ter intelligently.  They  enter  the  discussion  obsessed  with  precon- 
ceived notions,  the  accuracy  of  which  they  have  had  no  opportunity 
to  test.  During  the  first  years  after  the  government  acquired  the 
business  of  the  Compagnie  generate  des  telephones,  a  separate 
statement  was  made  each  year  of  the  receipts  and  expenditures 
in  that  branch  of  the  public  business;  but  in  1892,  in  accordance 
with  the  policy  of  budgetary  unity  which  was  adopted  at  that 
time  expressly  to  bring  order  out  of  the  chaos  into  which  French 
finances  had  fallen,  the  telephone  budget  was  merged  with  the 
general  budget  of  the  state.1  Thereafter  the  deputies  were  com- 
pelled to  search  out  the  telephone  figures  in  the  general  accounts 
of  receipts  and  expenditures.  The  special  commissions  on  the 
section  of  the  general  budget  relating  to  the  postal  administration 
might  have  done  much  to  fill  this  deficiency  in  the  nation's  busi- 
ness practices,  but  they  have  regularly  neglected  their  opportunity. 

The  result  is  that  the  all  too  limited  time  of  the  chambers  of 
1  By  §  3  of  the  Loi  des  finances  du  26  dec.,  1892. 


ECONOMY  OF  PUBLIC  OWNERSHIP  451 

Parliament  is  frittered  away  with  the  discussion  of  local  or  per- 
sonal matters  of  comparatively  trivial  importance,  and  the  broad 
questions  of  general  policy  fail  to  receive  their  proper  share  of 
attention.  The  few  parliamentary  critics  of  the  general  policy  of 
the  management  are  apt  to  be  of  the  watch-dog-of-the-treasury 
type,  whose  chief  concern  is  to  cut  down  the  estimates  of  the 
public  officials  to  the  irreduceable  minimum.  This  is  especially 
the  case  in  France,  where  long  years  of  uninterrupted  deficits  have 
made  economy  the  cardinal  principle  of  public  finance.  Such 
critics  act  on  the  theory  that  the  public  officials  may  be  safely 
trusted  to  ask  for  all  the  appropriations  that  are  needed,  and  they 
consequently  confine  their  attentions  to  the  discovery  of  particu- 
lar items  that  the  public  authorities  do  not  need  or  can  be  induced 
to  forego,  at  least  for  the  ensuing  year. 

This  method  of  public  financial  criticism  is  particularly  effective 
in  France.  Under  the  French  rules  of  parliamentary  procedure 
the  estimates  of  the  various  departments  may  be  freely  cut  down 
either  in  the  commission  of  the  budget  or  on  the  floor  of  the 
chamber.  Moreover  the  ministers  do  not  always  support  one 
another  in  the  face  of  parliamentary  criticism.  Even  after  the 
preliminary  estimates  have  been  agreed  upon  between  the  min- 
ister of  finance  and  the  minister  in  charge  of  the  service  for  which 
the  appropriations  are  desired,  the  two  do  not  always  act  in  har- 
mony before  the  commission  on  the  budget.  The  former  does  not 
always  give  the  latter  his  strongest  support  when  the  latter  is 
fighting  against  proposals  in  the  commission  to  reduce  the  grants 
to  be  allotted  to  the  service  under  consideration.  Indeed,  the 
minister  of  finance  sometimes  gives  the  impression  that  he  is 
secretly  glad  to  see  his  colleague's  items  cut  down,  as  if  the  pros- 
pects for  a  favorable  balance  at  the  end  of  the  coming  year  were 
thereby  made  brighter.  Even  after  the  revised  estimates  are 
reported  by  the  commission  to  the  chamber,  a  minister  still  feels 
himself  free  to  accept  additional  appropriations  initiated  by  the 
chamber  itself.  If  his  colleague  at  the  head  of  the  ministry  of 
finance  will  not  consent  to  such  an  increase,  the  disagreement  is 
settled  by  a  vote  of  the  chamber. l 

1  Docs,  parl.,  1907,  Annexe  no.  1247,  p.  1907. 


452  PUBLIC  OWNERSHIP  OF  TELEPHONES 

This  procedure  is  possible  only  because  of  the  peculiar  state  of 
parliamentary  government  in  France.  The  responsible  ministers 
do  not  consider  themselves  responsible  jointly  for  their  individual 
acts.  A  minister  whose  conduct  of  affairs  gives  rise  to  dissatisfac- 
tion can  be  forced  to  resign  by  a  hostile  vote  in  the  chamber  with- 
out the  implication  of  his  colleagues.  Party  politics  are  managed 
on  a  personal  basis.  The  leader  of  the  ministry  may  be  changed 
several  times  by  hostile  votes  in  the  chamber,  though  the  same 
party  may  remain  in  power  and  often  many  of  the  same  ministers 
may  continue  to  hold  office.  The  result  is  that  each  minister 
thinks  of  himself  first  and  only  afterwards  of  his  colleagues. 

Cabinet  government  in  this  form  is  especially  unfortunate  in 
its  effects  on  the  conduct  of  public  business  undertakings,  particu- 
larly under  the  financial  conditions  that  prevail  in  France.  The 
cabinet  as  a  whole  feels  too  little  sympathy  with  the  efforts  of  the 
minister  charged  with  the  conduct  of  such  an  undertaking.  He 
is  too  often  left  to  fight  his  own  battles  both  with  Parliament 
and  with  the  minister  of  finance.  The  defective  operation  of  the 
mechanism  of  checks  and  balances  has  thrown  into  the  hands  of 
the  latter  a  disproportionate  share  of  the  power  over  the  conduct 
of  public  business  operations  affecting  the  public  revenues.  The 
public  officials  charged  with  the  conduct  of  the  telephone  business 
have  become  little  more  than  his  mere  subordinates.  There  is 
consequently  no  adequate  curb  to  his  desires  for  revenue.  The 
French  government's  long-standing  need  for  funds  has  bred  in 
the  minds  of  ministers  of  finance  a  spirit  of  economy  that  is 
scarcely  to  be  distinguished  from  avarice.  This  would  not  be  so 
unfortunate  if  the  ministry  enjoyed  a  greater  security  of  tenure. 
Under  the  existing  circumstances  each  successive  minister  of 
finance  thinks  chiefly  of  establishing  a  favorable  balance  during 
the  ensuing  year  and  does  not  trouble  himself  greatly  about  what 
is  to  come  after.  Hence  he  is  strongly  tempted  to  sacrifice  perma- 
nent soundness  to  present  profits  in  the  management  of  public 
business  undertakings.  Whether  he  is  negotiating  with  the  chief 
of  the  telephone  service  or  with  that  of  the  department  of  fine  arts, 
he  is  under  the  influence  of  precisely  identical  motives  in  arranging 
his  budget  for  the  year.  Proposed  expenditures  for  multiple 


ECONOMY  OF  PUBLIC  OWNERSHIP  453 

switchboards  and  for  marble  statues  are  judged  on  the  same 
grounds.  Proposed  expenditures  for  works  that  would  more  than 
pay  for  themselves  before  worn  out  fail  to  receive  his  sanction 
simply  because  they  would  diminish  his  prospects  for  a  surplus 
at  the  end  of  the  ensuing  year.1 

The  nature  of  the  defects  in  the  management  of  the  telephone 
undertaking  was  recognized  by  the  parliamentary  authorities 
within  half  a  decade  after  the  government  acquired  the  complete 
possession  of  the  exchange  business.  The  commission  on  the 
budget  for  1895  reported: " It  is  difficult  not  to  perceive  that  the 
administrative  system  when  applied  to  such  an  undertaking  does 
not  lend  itself  easily  to  improvements,  to  reforms,  to  a  progressive 
management  of  the  business,  which  those  at  the  head  of  the  under- 
taking, if  they  were  their  own  masters,  could  easily  bring  about 
to  the  great  advantage  of  the  public."2  The  commission  went 
on  to  observe  that  the  administrative  authorities  seemed  para- 
lyzed, when  it  was  a  question  of  improving  the  service.  For 
several  years  the  increased  appropriations  that  had  been  needed 
for  desirable  improvements  had  been  made  only  by  the  agency  of 
parliamentary  initiative.  This  practice,  it  declared,  was  dangerous. 
For  Parliament  was  ill  fitted  for  the  task  of  planning  new  construc- 
tion, and  was  likely  needlessly  to  burden  the  budget  without 
greatly  improving  the  service  which  had  aroused  its  solicitude. 
The  administrative  authorities  themselves  should  take  the  initi- 
ative in  devising  fresh  expenditures,  and  the  function  of  Parlia- 
ment should  be  confined  to  restraining  an  excessive  zeal  on  the 
part  of  the  administration. 

The  dependence  of  the  telephone  management  on  Parliament 
for  the  sanction  of  each  and  every  item  of  expenditure  has  another 
disadvantage.  It  prevents  the  management  from  spending  money 
promptly  for  objects  not  anticipated  at  the  beginning  of  the  year 
when  the  budget  is  framed,  although  such  expenditures  would  effect 
a  real  saving  in  the  conduct  of  the  business.  Thus  the  management 
cannot  take  advantage  of  favorable  fluctuations  in  the  price  of 

1  Steeg,  p.  1853.    Cf.  Yves  Guyot:  Trois  ans  au  ministtre  des  travaux  publics; 

1895,  p.  55- 

2  Docs,  parl.,  1894,  Annexe  no.  966,  p.  1863. 


454  PUBLIC  OWNERSHIP  OF  TELEPHONES 

materials  to  anticipate  its  future  consumption.  It  is  also  impeded 
in  attempts  to  meet  unexpected  demands  for  fresh  construction, 
which  may  arise  during  the  course  of  the  financial  year.  The 
German  telephone  authorities  do  not  hesitate  to  incur  expense 
for  works  not  authorized  in  the  budget,  when  they  deem  such 
action  in  the  public  interest,  and  rely  upon  a  subsequent  vote  of 
the  Reichstag  to  justify  their  proceeding.  The  French  never  do 
this,  but  occasionally  transfer  sums  voted  for  one  purpose  to  apply 
them  to  another.  After  the  destruction  of  the  Gutenberg  exchange 
at  Paris  in  September,  1908,  the  chief  of  the  telephone  service 
contracted  for  new  apparatus  at  an  expense  of  several  million 
francs  without  waiting  for  authorization  from  Parliament,  and 
justified  his  action  by  obtaining  a  special  decree  from  the  Conseil 
d'Etat.  Parliament  was  not  then  in  session  and  was  not  to  assemble 
for  several  weeks.  Yet  he  was  severely  criticised  for  doing  this.1 
In  general  the  inability  of  the  business  managers  to  act  freely  on 
their  own  responsibility  for  the  good  of  the  service  entails  the  loss 
of  the  best  opportunities  for  effecting  economies  in  the  conduct  of 
affairs.2 

Various  remedies  for  the  improvement  of  French  methods  of 
public  business  administration  have  been  proposed.  One  sugges- 
tion was  that  the  receipts  and  expenses  of  the  telephone  under- 
taking should  be  stated  together  in  the  general  budget  in  order 
that  the  deputies  could  obtain  a  clearer  idea  of  the  true  position 
of  affairs.3  The  advocate  of  this  reform  did  not  venture  to  suggest 
an  independent  budget  for  the  telephone  business,  realizing  that 
such  a  proposal  to  depart  from  the  principle  of  budgetary  unity 
would  do  violence  to  the  traditional  French  notions  of  sound 
public  finance  and  consequently  have  no  chance  of  acceptance. 
However,  even  as  it  was,  the  suggestion  bore  no  fruit.4  Another 
proposal  was  that  the  government  should  abandon  to  the  tele- 
phone authorities  all  receipts  in  excess  of  the  official  estimate 

1  Debats  parl.,  Ch.  des  dep.,  Dec.  17,  1908;  speech  of  M.  Doumer,  rapporteur- 
ge"n6ral,  reported  in  V Action,  Dec.  18,  1908. 

2  Steeg,  p.  1851. 

8  Debats  parl.,  1906,  pp.  1393-1394,  speech  of  M.  Chastenet,  March  17. 
4  Cf.  remarks  of  Louis  Barthou,  Minister  of  Public  Works,  Posts,  and  Telegraphs, 
Dec.  3,  1906;  D6bats  parl.,  1906,  p.  2854. 


ECONOMY  OF  PUBLIC  OWNERSHIP  455 

incorporated  by  the  minister  of  finance  in  the  budget.1  Thereby 
the  government  would  lose  no  revenues  on  which  it  had  counted 
to  establish  the  balance  for  the  coming  year.  Had  such  a  policy 
been  in  effect  during  the  five  years  preceding  the  outbreak  of  the 
crisis  of  1905,  the  telephone  authorities  would  have  obtained  the 
use  of  a  quantity  of  additional  capital  sufficient  to  have  made  all 
the  improvements  in  the  Paris  exchange  system  which  had  been 
promised  by  Millerand  in  1900,  but  which  had  not  been  carried 
out  on  account  of  the  refusal  of  the  minister  of  finance  to  give  his 
consent  to  the  necessary  appropriations.  A  third  suggestion  was 
that  the  government  should  content  itself  with  a  fixed  proportion 
of  the  annual  surpluses  of  the  telephone  undertaking  and  leave 
the  rest  to  be  reinvested  at  the  discretion  of  the  management  in  the 
extension  of  the  business.2  None  of  these  suggestions  found  favor 
with  the  government  of  the  day,  and  no  improvement  has  been 
made  in  the  methods  of  conducting  the  telephone  business.3 

The  evil  results  of  the  methods  of  financial  control  over  tele- 
phone operations  in  France  are  not  unlikely  to  manifest  them- 
selves also  in  Italy.  The  financial  policy  adopted  by  the  Italian 
government  by  the  acts  of  1903  and  1907  is  essentially  a  repro- 
duction of  that  followed  with  such  disastrous  results  in  France. 
Since  both  parliamentary  procedure  and  governmental  financial 
distress  are  much  the  same  in  the  two  countries,  there  is  little 
reason  for  expecting  the  Italians  to  make  a  better  success  of  their 
telephone  undertaking  than  have  the  French.  Even  in  Germany, 
since  the  telephone  accounts  are  merged  in  the  general  budget 
of  the  state,  this  peril  is  not  sufficiently  guarded  against.  The 
German  imperial  finances  have  been  allowed  to  fall  into  a  state 
of  chronic  deficits.  The  failure  of  recent  attempts  to  restore  the 

1  Sembat,  I,  pp.  1388  ff.  *  Steeg,  p.  1853. 

1  The  danger  of  the  combination  of  the  budget  of  the  business  undertakings  of 
the  state  with  its  general  budget  was  fully  realized  by  the  leading  French  financiers. 
Thus  Rouvier,  then  president  of  the  council  of  ministers,  employed  this  danger  as  an 
argument  against  the  repurchase  of  the  Chemin  de  fer  de  1 'Quest  in  the  debate  in 
the  Chamber  of  Deputies  on  Jan.  26,  1904.  Journal  Omciel,  DSbats  parl.,  Ch.  des 
d6p.,  1904,  pp.  139-142.  In  reply  it  was  pointed  out  that  the  combination  was  not 
necessary.  Cf.  Edgar  Milhaud:  Le  Rachdt  des  chemins  defer,  1904,  pp.  220-221.  Cf. 
also  Paul-Boncour:  Les  Syndicats  des  fonctionnaires,  1906,  p.  57.  The  lesson  of  the 
postal  crisis,  he  said,  is  budgetary  autonomy. 


456  PUBLIC  OWNERSHIP  OF  TELEPHONES 

balance  between  income  and  outgo  can  only  have  served  to  inten- 
sify the  desire  of  the  German  government  to  discover  additional 
sources  of  revenue  in  its  business  undertakings.  The  possibility 
of  converting  the  telephone  undertaking  into  a  fiscal  monopoly 
and  of  securing  large  profits  at  the  expense  of  good  service  is, 
however,  less  in  Germany  than  in  France  or  Italy,  because  the 
patrons  of  the  service  are  better  organized  and  more  capable  of 
offering  an  effective  resistance  to  such  a  purpose.1  The  telephone 
management  is  subject  to  the  domination  of  the  fiscal  authorities 
in  Germany  as  in  France,  but  the  German  fiscal  authorities  them- 
selves occupy  a  stable  and  independent  position  which  the  French 
do  not.  They  know  they  will  reap  where  they  sow.  Finally,  the 
Germans  have  had  too  much  experience  in  the  conduct  of  public 
business  undertakings  ever  to  imitate  the  hand-to-mouth  financial 
policy  of  the  French.  Moreover,  the  German  telephone  authorities 
have  a  secure  tenure  of  office  and  are  amply  protected  against  the 
perpetual  perturbations  of  party  politics.  Parliamentary  proced- 
ure and  the  relations  between  the  legislature  and  the  executive 
are  such  as  to  give  the  publk  business  managers  both  the  responsi- 
bility for  the  good  conduct  of  business  operations  and  the  power 
to  carry  out  their  own  ideas.  These  circumstances  guarantee  the 
continuity  of  their  business  policy  and  make  their  interest  lie  in 
planning  for  the  future  as  well  as  for  the  present. 

It  is  to  Switzerland  that  we  must  turn  for  the  most  smoothly 
working  public  business  organization.  There  we  see  the  most 
generally  satisfactory  distribution  of  power  and  of  responsibility 
between  government  and  public,  between  trained  expert  and 
untrained  laborer.  The  separation  of  executive  and  legislature 
in  Switzerland  has  brought  with  it  the  same  advantages  in  the 
conduct  of  business  undertakings  as  were  exemplified  by  the 
experience  of  Germany.  The  change  to  a  democratic  in  place  of  an 
aristocratic  government  has  not  swept  away  all  the  difficulties 
which  have  faced  the  German  administration  in  its  conduct  of 
telephone  operations,  but  it  has  mitigated  some  and  changed  the 
form  of  others.  The  struggle  of  conflicting  interests  in  the  making 

1  Cf.  the  remarks  of  Marcel  Sembat  in  Ch.  des  dep.,  Nov.  6,  1908;  reported  in 
Le  Matin,  Nov.  7,  1908. 


ECONOMY  OF  PUBLIC  OWNERSHIP  457 

of  rates  is  as  keen,  but  at  least  has  ever  been  fought  out  in  broad 
daylight  and  has  not  been  confounded  with  alien  questions  of 
fiscal  policy  and  financial  reform.  The  development  policy  of  the 
administration  has  been  more  easily  controlled  by  consumers  than 
has  been  the  case  in  Germany,  and  the  adoption  of  lucid  and 
comprehensive  methods  of  accounting  has  been  enforced.  The 
Swiss  people  have,  moreover,  shown  themselves  capable  of  dealing 
justly  with  the  private  electrical  interests  with  which  the  public 
undertaking  came  into  conflict.  They  may  well  be  proud  of  their 
record  in  the  telephone  business. 

The  ability  of  public  business  managers  under  favorable  cir- 
cumstances to  conduct  with  success  the  affairs  of  a  going  concern 
such  as  an  established  telephone  business  may  be  admitted,  and 
yet  it  may  be  contended  that  it  is  unwise  to  adopt  a  policy  of  public 
ownership  and  operation  for  such  an  industry.  This  contention  may 
be  founded  on  the  assumption  that,  although  the  principle  of  free 
competition  is  inapplicable  to  such  a  business  as  the  telephone, 
the  principle  of  free  substitution  should  not  also  be  abandoned. 
Thus  the  employment  of  technical  experts  to  determine  the  appli- 
cation of  improved  processes  and  tools  in  a  monopolistic  industry 
is  an  obvious  principle  of  business  administration.  If  this  principle 
is  not  observed,  the  proprietors  of  an  undertaking  run  the  risk 
either  of  failing  to  introduce  an  improvement  that  would  pay  or  of 
introducing  an  improvement  that  would  not  pay.  It  is  less  obvious 
that  the  proprietors  of  an  undertaking  have  an  interest  in  prevent- 
ing the  too  rapid  introduction  of  paying  improvements.  Yet  if 
they  do  introduce  them  rapidly,  they  may  lose  by  the  depreciation 
of  their  existing  investment  more  than  they  save.  There  is  a  point, 
however,  beyond  which  the  improvement  ceases  to  be  a  mere 
matter  of  detail  in  an  established  industry  and  becomes  the  foun- 
dation of  a  new  industry.  In  so  far  as  this  new  industry  is  capable 
of  supplying  the  same  need  as  the  old,  the  proprietors  of  the  latter 
will  have  an  interest  in  preventing,  if  possible,  a  too  rapid  develop- 
ment of  the  new  industry.  If  the  threatened  industry  is  a  private 
venture,  and  the  promoters  of  the  new  industry  are  free  to  compete 
for  the  favor  of  the  consumer,  the  potential  substitution  of  one  for 
the  other  serves  the  public  interest  as  well  as  free  competition 


458  PUBLIC  OWNERSHIP  OF  TELEPHONES 

between  rival  undertakings  within  an  industry.  In  case  consumers 
choose  to  transfer  their  patronage,  the  loss  by  the  depreciation  of 
the  older  industry,  if  any,  falls  directly  on  the  shoulders  of  its  un- 
fortunate owners,  and  the  public  secures  the  immediate  benefit  of 
the  improvement  at  no  apparent  cost  to  itself.  If,  however,  the 
government  owns  the  threatened  industry,  what  the  public  gain 
in  their  capacity  of  consumers  by  the  immediate  introduction  of 
the  improvement  may  be  wholly  or  partially  offset  by  their  loss  in 
their  capacity  of  taxpayers.  Hence  the  public  authorities  respon- 
sible for  the  management  of  the  public  business  undertaking  may 
be  tempted  to  employ  their  authority  to  oppose  the  establishment 
of  the  new  industry. 

From  the  point  of  view  of  the  proprietors  of  telegraphs  the 
telephone  was  such  an  improvement,  or,  more  strictly  speaking,  it 
became  such  an  improvement  when  its  application  was  extended 
from  local  exchange  to  inter-urban  and  long-distance  service.  If 
the  application  of  wireless  telegraphy  and  telephony  to  overland 
communication  should  become  commercially  practicable,  they 
would  be  improvements  of  a  similar  nature.  We  have  seen  that 
the  public  telegraph  authorities  on  the  Continent  of  Europe  did  in 
fact  employ  their  authority  in  one  way  or  another  to  retard  the 
introduction  of  the  telephone  as  a  substitute  for  the  telegraph.  The 
fear  that  this  attitude  on  the  part  of  public  authorities  intrusted 
with  the  management  of  public  business  undertakings  will  materi- 
ally obstruct  industrial  progress  constitutes  one  of  the  most  for- 
midable objections  to  the  policy  of  public  ownership. 

It  is  true  that  under  a  regime  of  public  ownership  the  consumer 
cannot  escape  the  loss  that  may  be  occasioned  by  discarding  val- 
uable plant  in  order  to  make  way  for  improvements.  It  is  not  true, 
however,  that  the  consumer  escapes  all  share  in  the  loss  that  may 
be  occasioned  by  the  equally  rapid  introduction  of  improve- 
ments under  a  regime  of  private  ownership.  The  scrapping  of  a 
quantity  of  valuable  plant,  still  capable  of  good  service,  is  always 
a  matter  of  regret,  not  only  from  the  standpoint  of  the  owner  of  the 
plant  but  from  that  of  the  whole  community,  for  it  means  that  a 
corresponding  quantity  of  the  capital  at  the  disposal  of  the  com- 
munity has  been  destroyed.  The  labor  required  to  replace  that 


ECONOMY  OF  PUBLIC  OWNERSHIP  459 

plant  might  have  been  employed  to  satisfy  some  hitherto  wholly 
neglected  want.  In  reckoning  the  net  gain  to  a  community  from 
the  introduction  of  an  improvement,  allowance  must  accordingly 
be  made  for  the  possible  loss  occasioned  by  the  depreciation  of 
existing  investments.  In  other  words,  precisely  the  same  improve- 
ment may  be  worth  less  in  one  community  in  which  it  renders 
useless  the  results  of  much  past  labor  on  the  part  of  members  of 
that  community  than  in  another  where  it  does  not  have  that  effect. 

This  is  a  circumstance  of  which  the  self-interest  of  private  busi- 
ness men  takes  no  account.  It  matters  not  to  the  promoter  of  a 
telephone  undertaking  that  a  telegraph  line  which  his  undertaking 
is  likely  to  render  less  useful  has  cost  much  toil  and  trouble.  It  is 
enough  for  him  that  he  can  make  a  bigger  profit  by  promoting  the 
telephone  undertaking  than  he  can  in  any  other  way.  To  the 
community,  however,  his  telephone  undertaking,  if  established 
more  rapidly  than  is  required  to  supplement  the  telegraph  or  re- 
place it  as  it  wears  out,  may  be  worth  much  less  than  a  number  of 
other  applications  which  the  business  man  might  have  made  of  the 
same  quantity  of  capital.  Thus  the  interests  of  the  private  busi- 
ness man  and  of  the  community  as  a  whole  may  not  coincide  with 
respect  to  the  rapidity  of  introduction  of  such  an  industrial  im- 
provement. If  these  interests  do  not  coincide,  the  doctrine  of  the 
harmony  of  economic  interests  breaks  down. 

If  the  determination  of  the  rate  at  which  industrial  improve- 
ments shall  be  introduced  is  abandoned  to  the  blind  operation  of 
free  competition  in  an  industry  in  which  there  is  much  to  lose 
through  industrial  waste  as  well  as  much  to  gain  through  industrial 
progress,  there  is  no  certainty  that  the  interests  of  the  public  will 
be  secured.  The  alternative  is  to  withdraw  the  threatened  industry 
altogether  from  the  realm  of  free  competition  and  to  intrust  to  the 
trained  expert  the  task  of  protecting  the  interests  of  the  public.  The 
trained  expert  may  make  mistakes,  yet  by  dispensing  with  his  ser- 
vices a  community  is  likely  to  secure  more  speed  in  the  introduc- 
tion of  valuable  improvements  at  a  disproportionate  cost.  The 
greater  the  durability  and  the  more  specialized  the  nature  of  the 
existing  plant,  the  greater  the  probability  that  speed  in  the  intro* 
duction  of  improvements  will  be  secured  beyond  a  certain  point 


460  PUBLIC  OWNERSHIP  OF  TELEPHONES 

only  by  the  sacrifice  of  true  economy.  Under  the  competitive 
system  the  matter  is  beyond  the  control  of  the  community.  Only 
by  a  deliberate  choice  of  monopoly  in  such  an  industry  as  the  tele- 
phone can  the  public  take  the  measures  necessary  to  insure  the 
most  economical  dispensation  of  the  productive  forces  of  the 
community.  European  experience  in  the  telephone  industry  does 
not  enable  us  to  determine  whether  competition  or  monopoly 
would  have  secured  the  more  satisfactory  combination  of  progress 
and  economy.1  We  can  only  conclude  that  industrial  progress  is 
no  safer  in  the  hands  of  the  technical  expert  employed  by  a  private 
monopoly  than  in  those  of  the  technical  expert  employed  by  the 
public. 

It  is  impossible  to  review  the  experience  of  the  continental 
European  countries  with  the  telephone  industry  without  being 
led  to  attempt,  at  least  briefly,  an  interpretation  of  the  broader 
economic  movement  of  which  the  public  organization  of  the  tele- 
phone business  is  one  part.  A  general  reorganization  of  the  pro- 
ductive forces  of  the  community  has  been  taking  place.  We  have 
seen  local  voluntary  organizations  of  consumers  grow  up  and 
gradually  assume  a  more  and  more  important  part  in  the  direction 
of  the  economic  activities  of  the  community;  we  have  seen  oc- 
cupational voluntary  organizations  of  workers  grow  up  and  grad- 
ually assume  a  more  and  more  important  part  in  the  direction  of 

1  The  only  country  of  importance  in  which  no  governmental  obstacles  were  inter- 
posed to  impede  the  free  substitution  of  the  telephone  for  the  telegraph  was  the 
/  United  States,  for  the  United  States  was  the  only  important  country  in  which  the 
government  did  not  own  the  telegraphs  at  the  time  of  the  invention  of  the  telephone. 
Yet  the  United  States  is  the  country  in  which  the  heaviest  tax  was  laid  upon  the 
infant  telephone  industry  by  the  interests  in  control  of  the  telegraphs.  By  the  agree- 
ment of  November  10,  1879,  between  the  National  Bell  Telephone  Company  and  the 
Western  Union  Telegraph  Company  the  former  was  bound  to  pay  over  to  the  latter 
one  fifth  of  the  entire  receipts  from  the  telephone  business.  The  most  that  any 
European  state  telegraph  administration  ventured  to  charge  was  the  ten  per  cent 
royalty  collected  from  the  telephone  companies  in  the  United  Kingdom  by  the 
British  government.  (See  my  article  on  the  Telephone  in  Great  Britain  in  the  Quar- 
terly Journal  of  Economics,  November,  1906.)  The  German  and  Swiss  policy  of  ex- 
acting guarantees  from  prospective  users  of  new  telephone  lines  during  the  early 
development  of  the  industry,  though  more  inconvenient  to  telephone  users  than  the 
American  policy  of  paying  a  share  of  the  gross  receipts  to  the  telegraph  monopoly, 
bore  much  less  heavily  on  the  infant  industry. 


ECONOMY  OF  PUBLIC  OWNERSHIP  461 

the  conditions  of  employment;  we  have  seen  the  central  political 
organizations,  known  as  states,  reach  out  and  take  possession  of 
great  business  undertakings.  Perhaps  to  the  casual  observer  this 
last  would  appear  the  only  aspect  of  the  economic  evolution  of 
modern  times  that  concerns  the  student  of  public  ownership.  A 
closer  examination  shows  the  error  of  this  view.  In  fact,  it  is  the 
organization  of  the  market  by  the  consumer,  the  assertion  by  the 
wage-earner  of  his  right  to  share  in  the  control  of  the  general  con- 
ditions of  employment,  and  the  recognition  by  the  public  of 
true  worth  of  the  specially  trained  expert  in  the  conduct  of  big  in- 
dustrial undertakings,  that  are  the  most  important  features  of 
the  broader  economic  movement  of  recent  years.  By  displacing  the 
business  man  from  his  autocratic  position  at  the  head  of  such  an 
industry  as  the  telephone  and  distributing  his  functions  among  the 
various  rising  elements  of  industrial  organization,  the  European 
governments  have  simply  fallen  in  with  the  spirit  of  the  times. 

The  great  advantage  of  the  ownership  of  business  undertakings 
by  the  community  lies  in  the  power  that  goes  with  possession. 
While  the  ownership  of  businesses  of  general  public  importance 
remains  in  private  hands,  there  is  no  protection  for  the  ordinary 
economic  interests  of  consumers  except  by  free  competition  or 
by  public  regulation.  In  the  telephone  business  the  former  is 
neither  desirable  nor  possible.  The  latter  may  be  obtained  in  only 
two  ways:  (i)  by  special  contract  between  the  private  owners  and 
the  public  authorities;  (2)  by  direct  legislative  action,  subject  to 
appeal  to  the  courts  for  the  protection  of  individual  rights.  Under 
either  method  of  public  regulation,  the  antagonism  of  interest 
between  the  private  monopolist  and  the  consumer  may  be  sub- 
dued but  is  never  removed.  It  was  in  order  to  possess  complete 
control  over  the  management  of  the  telephone  business  that  the 
governments  of  Europe  adopted  the  policy  of  public  ownership. 
By  retaining  complete  control  in  their  own  hands,  those  govern- 
ments have  had  the  opportunity  to  adopt  methods  for  the  estab- 
lishment of  rates  and  the  maintenance  of  service  that  would  have 
been  impossible  under  any  form  of  private  ownership.  In  a  busi- 
ness such  as  the  telephone,  the  best  security  for  the  establishment 
of  reasonable  rates  is  to  give  those  who  are  to  pay  the  rates  a  voice 


462  PUBLIC  OWNERSHIP  OF  TELEPHONES 

in  their  making,  and  the  best  security  for  the  accurate  adjustment 
of  the  supply  of  telephone  facilities  to  the  demand  is  to  give  to 
those  who  are  to  use  the  facilities  a  share  of  the  responsibility  for 
their  creation.  Regarding  public  ownership  from  the  standpoint 
of  production,  the  extent  to  which  the  communities  that  have 
taken  the  direction  of  their  telephone  service  into  their  own  hands 
have  profited  by  their  venture  has  depended  largely  upon  the  skill 
with  which  they  have  organized  their  business  administration. 

Experience  has  shown  that  not  all  peoples  possess  the  capac- 
ity for  such  organization  in  the  same  degree.  Nor  could  the  same 
people  create  an  equally  efficient  public  business  organization  in 
all  industries.  In  fact  the  telephone  industry  has  offered  peculiar 
advantages  for  the  experiment  of  dispensing  with  the  services  of 
the  private  business  man.  The  effectiveness  of  public  business 
organization  in  the  telephone  industry  has  been  largely  dependent 
upon  the  peculiar  nature  of  the  industry  and  the  extent  of  the 
market.  The  telephone  industry  can  only  attain  its  highest  utility 
when  managed  as  an  exclusive  monopoly  in  a  given  territory.  The 
market  for  telephone  service  comprises  the  whole  body  of  individ- 
uals in  the  territory  covered  by  a  connected  telephone  system, 
and  in  practice  can  be  limited  for  administrative  purposes  without 
great  inconvenience  by  the  political  boundaries  of  a  country. 
Hence  when  owned  by  the  government,  owner  and  consumer  are 
identical.  Furthermore,  the  mechanical  nature  of  the  service  and 
the  stability  of  the  demand  for  the  service  make  possible  accurate 
prediction  of  the  demand  by  statistical  methods.  In  those  indus- 
tries in  which  these  conditions  are  present  the  policy  of  public 
ownership  is  best  fitted  to  enable  the  community  to  avoid  both 
the  periodical  overproduction  of  free  competition  and  the  per- 
petual underproduction  of  private  monopoly. 

The  essence  of  the  transition  from  private  to  public  ownership 
is  the  replacement  of  the  business  man  (or  business  corporation) 
by  the  organized  self -directing  community.  The  effect  is  the  trans- 
fer of  the  risks  of  the  undertaking  from  private  promoters  to  the 
community  as  a  whole.  In  practice  this  risk  is  shifted  by  the  com- 
munity in  its  political  capacity  of  producer  to  its  individual  mem- 
bers in  their  economic  capacity  of  consumers.  The  result  is  a  less 


ECONOMY  OF  PUBLIC  OWNERSHIP  463 

rapid  introduction  of  technical  improvements  than  under  a  regime 
of  free  competition,  but  a  more  economical  dispensation  of  the 
public  resources.  Under  public  ownership  the  consumer  saves  the 
reward  for  risk  which  under  private  ownership  he  would  have  to 
pay  in  the  form  of  higher  rates.  This  saving  is  the  apparent  re- 
compense for  the  slower  rate  of  industrial  progress.  But  once  it 
is  recognized  that  in  a  particular  industry  the  hypothetical  alter- 
native of  free  competition  is  an  illusion,  it  becomes  evident  that 
the  community's  saving  by  the  assumption  of  the  risks  of  the 
enterprise  is  not  a  mere  recompense  for  the  sacrifice  of  a  more 
rapid  rate  of  industrial  progress,  but  a  clear  gain.  For  under  the 
actual  alternative  to  public  ownership  in  such  an  industry,  namely 
a  regulated  private  monopoly,  there  is  no  greater  security  for 
sound  industrial  progress  than  under  public  ownership,  and  it  is 
certain  that  at  least  a  portion  of  the  advantages  of  industrial 
progress  will  be  appropriated  by  the  monopolist,  solely  by  virtue 
of  the  fact  that  he  is  a  monopolist.  The  great  merit  of  public 
ownership,  therefore,  as  an  agent  of  production,  is  that  under  the 
proper  industrial  conditions  it  fulfills  more  economically  than  any 
other  method  of  industrial  organization,  the  direct  purpose  of 
production,  —  that  is,  the  supply  of  the  consumer  with  the  kind 
and  quantity  of  goods  that  he  desires. 


B  1LIOGRAPHICAL    APPENDIX 


BIBLIOGRAPHICAL  APPENDIX 

THE  chief  printed  sources  of  information  used  in  this  study  of  public 
ownership  of  telephones  on  the  Continent  of  Europe  are  as  follows:  — 

I.  OFFICIAL  PUBLICATIONS 

i.  INTERNATIONAL 

PUBLICATIONS  OF  THE  INTERNATIONAL  BUREAU  OF  TELEGRAPH 
ADMINISTRATIONS  AT  BERNE,  SWITZERLAND 

These  include  a  periodical,  the  Journal  telegraphique,  cited  as  J.  T. 
(see  p.  78),  in  which  are  regularly  published  the  official  communications 
from  constituent  telegraph  administrations,  mainly  of  a  statistical  na- 
ture, copies  of  all  statutes  and  important  decrees  and  ordinances,  and 
contributed  articles,  mainly  of  a  technical  nature.  The  bureau  compiles 
and  publishes  an  annual  summary  of  the  statistical  reports  of  the  con- 
stituent administrations,  covering  the  results  of  telegraph  and  telephone 
operations  in  every  important  civilized  country  except  the  United 
States,  cited  as  J.  T.,  Statistiques  (see  p.  336).  The  bureau  has  twice 
published  special  summaries  of  telephone  rates  in  force  in  all  countries 
reporting  to  it,  once  in  1894  and  again  in  1905,  cited  as  Tarifs  tel.,  I  and 
II  (see  p.  36).  (In  the  United  States,  the  bureau  of  the  census  has 
issued  elaborate  special  reports  on  telegraphs  and  telephones  as  of  1902 
and  1907,  the  latter  of  which  unfortunately  was  not  published  until 
this  book  was  on  its  way  through  the  press.) 

2.  NATIONAL 
A.  ADMINISTRATIVE  DOCUMENTS 

(a)  Germany.  The  imperial  postal,  telegraph,  and  telephone  adminis- 
tration publishes  an  annual  report  of  its  conduct  of  affairs  ;  a  quinquen- 
nial summary  of  statistical  and  technical  progress,  cited  as  Ergebnisse 
R.  P.  T.  (see  p.  66);  and  a  monthly  periodical,  the  Archivfur  Post  und 
Telegraphic,  cited  as  A.  P.  T.  (see  p.  68),  containing  current  informa- 
tion from  both  German  and  foreign  telephone  administrations  and 


468  BIBLIOGRAPHICAL   APPENDIX 

contributed  articles,  chiefly  on  technical  subjects.    The  Bavarian  and 
Wurtemberg  administrations  publish  annual  reports. 

(b)  Switzerland.   The  Federal  Council  publishes  a  very  full  annual 
report  on  its  telephone  business,  and  from  time  to  time  upon  request 
sends  in  to  the  Federal  Assembly  detailed  reports  on  special  topics. 

(c)  France.   There  are  no  regular  published  reports  from  the  tele- 
phone administration  (see  pp.  295,  450). 

(d)  Continental  Europe.    Summaries  of  all  published  reports  are 
printed  in  the  Journal  telegraphique  and  usually  in  the  Archil)  fiir  Post 
und  Telegraphic  as  well. 

B.  LEGISLATIVE  DOCUMENTS 

(a)  Germany.  The  proceedings  in  all  committees  of  the  Reichstag  are 
printed  in  full  (Drucksachen  des  Reichstages). 

(b)  Switzerland.  The  proceedings  in  all  committees  of  the  Council  of 
States  and  of  the  National  Council  are  preserved  in  manuscript,  and 
may  be  consulted  in  the  federal  library  at  Berne. 

(c)  France.   The  committees  on  the  budget  usually  report  through 
one  of  their  number  the  results  of  the  proceedings  in  the  committee, 
before  which  representatives  of  the  telephone  administration  are  re- 
quired to  appear  and  explain  their  use  of  the  public  money.  These 
reports  are  printed  as  annexes  to  the  debates. 

(d)  Continental  Europe.  In  all  countries  with  representative  institu- 
tions the  administrative  officials  may  be  required  to  appear,  particu- 
larly when  the  budget  is  under  consideration,  before  the  popular  branch 
of  the  legislature  and  answer  questions  put  to  them  by  the  representa- 
tives of  the  people.  Discussions  may  ensue,  and  are  reported  in  full  in 
the  stenographic  reports  of  parliamentary  debates. 

3.  LOCAL 

(a)  Germany.  The  municipal  governments  issue  reports  upon  local 
administration  at  regular  intervals,  which  contain  valuable  accounts  of 
their  relations  with  the  telephone  administration. 

(b)  Switzerland.    The  cantonal  and  municipal  governments  issue 
annual  reports,  which  contain  valuable  accounts  like  the  German. 

(c)  France.  The  municipal  governments  issue  annual  reports,  which 
are  of  little  value  outside  of  Paris. 

(d)  Continental  Europe.    There  are  good  municipal  reports  in  the 
leading  cities  generally,  but  they  have  not  been  examined  for  this  study 
except  in  Holland  and  Italy,  and  in  Vienna. 


BIBLIOGRAPHICAL   APPENDIX  469 

II.   SEMI-OFFICIAL  PUBLICATIONS 

1.  ASSOCIATIONS  OF  MUNICIPAL  CORPORATIONS 

(a)  Germany.  The  proceedings  of  the  German  Stadtetag  contain 
debates  on  municipal  problems,  including  that  of  telephone  service. 
There  is  also  a  statistical  year-book  of  German  cities. 

(b)  Switzerland.  There  is  a  statistical  year-book,  as  in  Germany, 
published  with  the  assistance  of  the  municipal  authorities. 

(c)  Continental  Europe.  Use  has  been  made  of  the  statistical  year- 
book of  Italian  cities.  One  is  also  published  in  Austria. 

2.  ASSOCIATIONS  OF  CHAMBERS  OF  COMMERCE,  ETC. 

(a)  Germany.  The  various  commercial  and  industrial  associations 
hold  annual  meetings  and  publish  their  proceedings.  These  often  con- 
tain discussions  of  telephone  affairs  (see  pp.  40,  173,  174). 

3.  LOCAL  CHAMBERS  OF  COMMERCE,  ETC. 

(a)  Germany.  Annual  reports  are  made  to  the  imperial  or  state  gov- 
ernments as  the  case  may  be.  These  often  contain  discussions  of  tele- 
phone affairs  (see  Chapter  iii,  and  Index  under  Chambers  of  Com- 
merce, etc.).    Cited  as  HGK  Stuttgart,  Oberbayern,  Mittelfranken, 
etc.,  as  the  case  may  be  (see  pp.  27,  32,  34,  etc.). 

(b)  Switzerland.   Annual  reports  are  published,  which  are  of  much 
value  in  tracing  industrial  developments,  as  in  Germany. 

(c)  France.  Reports  of  chambers  of  commerce  are  of  little  value  for 
the  study  of  telephone  affairs  except  in  Paris.    The  official  organ  of 
the  French  chambers  occasionally  contains  references  to  the  telephone 
(see  p.  297). 

(d)  Continental  Europe.  Reports  are  published,  but  have  not  been 
used  (see  p.  39). 

III.  TECHNICAL  PUBLICATIONS 

The  technical  periodicals  devoted  to  the  electrical  industry  give  more 
or  less  space  to  the  telephone.  The  Elektrotechnische  Zeitschrift,  the 
leading  organ  of  the  German  electrical  industry,  has  followed  the  devel- 
opment of  telephony  with  the  greatest  care.  Cited  as  E.  T.  Z.  (see 
pp.  89,  355).  For  a  note  on  the  French  technical  periodicals,  see  p.  315. 
The  technical  literature,  both  in  periodicals  and  in  book  form,  dealing 


470  BIBLIOGRAPHICAL   APPENDIX 

with  the  telephone  is  enormous,  and,  since  most  of  it  is  irrelevant,  no 
attempt  has  been  made  to  use  it  for  this  study  of  the  telephone  industry. 


IV.  MISCELLANEOUS  BOOKS  AND   PAMPHLETS 

These  have  been  used  only  incidentally  in  connection  with  the  study 
of  the  primary  sources  of  information.  For  a  list  of  secondary  works 
dealing  with  the  history  of  the  optical  and  electrical  telegraphs,  see  p.  3 ; 
dealing  with  the  organization  of  economic  interests,  see  pp.  39,  40; 
dealing  with  the  legal  position  of  the  telephone  in  Germany,  see  p. 
88;  dealing  with  the  relations  between  the  telephone  and  other  elec- 
trical services,  see  pp.  83,  84,  241,  242;  and  dealing  with  the  history  of 
the  telephone  on  the  Continent  of  Europe  generally,  see  p.  355. 

Books  and  other  sources  of  information,  cited  in  one  chapter  only, 
are  cited  the  first  time  in  full  and  thereafter  by  name  of  author  or  other 
convenient  description.  Books  and  other  sources  of  information,  cited 
in  more  than  one  chapter,  are  cited  regularly  by  an  abbreviation.  All 
abbreviations  used,  except  those  of  books,  are  noted  above.  The  fol- 
lowing abbreviations  of  the  titles  of  books  are  employed  in  more  than 
one  chapter:  Jung  I  (see  p.  24),  Jung  II  (see  p.  3),  and  Lacombrade 
(see  p.  269). 

A  study  of  the  Telephone  in  Great  Britain,  written  before  the  study 
of  Public  Ownership  of  Telephones  on  the  Continent  of  Europe  was 
begun,  was  published  in  the  Quarterly  Journal  of  Economics,  November, 
1906,  and  August,  1907. 


INDEX 


INDEX 


Aachen,  optical  telegraph  at,  abandoned,  u. 

Accounting,  public,  in  France,  449. 

Action  directs,  tactics  of  syndicalistes,  348. 

Agricultural  Society,  Swiss,  petition  from, 
230  note. 

Allemane,  leads  section  of  French  socialists, 
340. 

Allgemeine  Elektrizitats-Gesellschaft,  asso- 
ciated with  telephone  authorities  in  study 
of  technical  inprovements,  68;  foundation 
of,  77;  acquires  Sprague  patents,  78;  intro- 
duces electric  street  railway  into  Halle,  84; 
experience  during  crisis  of  1902,  108;  ab- 
sorbs Union  Elektrizitats-Gesellschaft,  109. 

American  Bell  Telephone  Company,  repre- 
sentative of,  in  Wurtemberg,  27;  introduc- 
tion of  metallic  circuits  by,  100. 

American  Telephone  and  Telegraph  Com- 
pany, long-distance  business  of,  71;  long- 
distance rates  of,  comparison  of,  with  Ger- 
man, 413, 414;  night-rates  of,  414;  criticism 
of,  415. 

Amsterdam,  optical  telegraph  to,  5;  electrical 
telegraph  from,  13;  municipal  ownership 
in,  362. 

Anti-militarists,  in  France,  349. 

Antwerp,  long-distance  telephone  line  to,  357. 

Arc  lamp,  invention  of,  76. 

Augsburg,  telephone  exchange  opened  in,  35. 

Austria,  electrical  telegraph  in,  n;  introduc- 
tion of  telephone  into,  363;  public  owner- 
ship in,  364. 

Automatic  exchange,  use  of,  in  Germany,  71, 
72;  discussion  of,  at  international  congress 
of  telephone  engineers,  74  note;  experiments 
with,  in  Bavaria,  410. 

Automatic  pay  stations,  use  of,  in  Germany, 
411. 

Bagehot,  Walter,  remarks  of,  concerning  men 
of  Massachusetts,  446. 

Barcelona,  telephone  concession  in,  391. 

Barthou,  Louis,  continues  labor  policy  of  Mil- 
lerand,  343;  favors  recognition  of  right  of 
civil  servants  to  strike,  345;  disavows  ear- 
lier opinion,  346  note. 

Basel,  first  telephone  exchange  in,  213;  con- 
flict between  telephone  and  municipal 
authorities  in,  233;  accident  in,  238;  agree- 
ment between  telephone  and  municipal 
authorities,  242. 


Baudot,  inventor  of  system  of  high-speed 
telegraphy,  68. 

Bavaria,  see  under  Germany;  introduction  of 
telephone,  31;  competition  of  telephone 
with  telegraph,  55. 

Bayrischer  Verkehrsbeamtenverein ,  organi- 
zation of,  190. 

Beirat  der  Verkehrsanstalten ,  Wurtemberg, 
meeting  of,  161. 

Belgium,  electrical  telegraphs  in,  12;  compe- 
tition of  telephone  with  telegraph,  55;  in- 
troduction of  telephone  in,  355 ;  telephone 
concessions  in,  357. 

Bell,  invention  of  telephone,  76. 

Bell  telephone  company,  in  Belgium,  356, 
358;  in  Holland,  358, 359, 360, 361 ;  in  Nor- 
way, 374,  375;  in  Sweden,  383. 

Berlepsch,  Baron  von,  fall  of,  188;  interested 
in  condition  of  governmental  employees, 
207  note. 

Berlin,  optical  telegraph  from,  5;  electrical 
telegraph  from,  6;  pneumatic  tubes  in,  21; 
first  telephone  in,  23;  telephone  exchange 
opened  in,  25;  magneto  calling  apparatus 
in  exchange  system,  66;  multiple  switch- 
board introduced,  70;  switchboard,  auto- 
matic, Strowger  system,  installation  of,  70; 
telephone  wires  put  underground,  85;  ex- 
change system,  number  of  talks  per  sub- 
scriber, 149,  165;  exchange  system,  distri- 
bution of  traffic  in,  180. 

Berne,  first  telephone  exchange  in,  213. 

Bilbao,  telephone  concession  in,  391. 

Bismarck,  interest  of,  in  early  telephone,  23; 
project  of,  for  nationalization  of  railways, 
44;  policy  of,  towards  working-classes,  187; 
message  of,  on  workmen's  insurance,  188. 

Blake,  inventor  of  telephone  apparatus,  76. 

Blake-Bell,  telephone  system,  receives  French 
concession,  271. 

Blanquistes,  origin  of,  340. 

Bonaparte,  Napoleon,  introduces  optical 
telegraph,  4;  reorganizes  chambers  of  com- 
merce, 282. 

Bonn,  controversy  with  telephone  adminis- 
tration, 98. 

Bordeaux,  establishment  of  telephone  ex- 
change in,  271. 

Breslau,  electrical  telegraph  to,  n;  telephone 
exchange  opened  in,  25;  telephone  wires 
put  under  ground,  85;  conflict  between 


474 


INDEX 


municipal  authorities  and  telephone  admin- 
istration in,  85;  settlement  of  conflict,  86; 
wins  case  against  telephone  administra- 
tion, IOO. 

Briand,  will  attempt  to  regulate  relations  be- 
tween government  and  civil  servants,  351 
note. 

Brousse,  Paul,  leads  section  of  French  Social- 
ists, 340. 

Brush,  inventor  of  electric  lighting  appara- 
tus, 76. 

Brussels,  telephone  competition  in,  356;  long- 
distance line  from,  357. 

Budapest,  meeting-place  of  international  con- 
gress of  telephone  engineers,  74  note;  first 
commercially  successful  electric  street  rail- 
way in  Europe,  78 ;  construction  of  electric 
street  railway  in,  97;  without  grounded  cir- 
cuits, 97;  first  telephone  exchange  in,  365. 

Budget,  telephone,  in  France,  450;  telephone, 
importance  of  independent,  455  note. 

Bundesrat,  German,  powers  to  determine  con- 
flicts between  telephone  and  other  electri- 
cal undertakings,  90. 

Caisse  des  de"p6ts  et  des  consignations,  loan 
from,  301,  337;  organization  of,  301  note. 

Call  offices,  public,  need  for,  pointed  out  by 
German  Handelstag,  141;  vigorous  estab- 
lishment of,  by  von  Podbielski,  159. 

Cannstatt,  telephone  exchange  opened  in,  30. 

Caprivi,  Count,  Imperial  Chancellor,  fall  of, 
142,  188. 

Carlyle,  T.,  quotation  from,  concerning  sta- 
tistics, 420. 

Casimir-Perier,  ministry  of,  fall  of,  345. 

Chambers  of  agriculture,  organization  of,  in 
Prussia,  41 ;  German,  part  played  by,  in  re- 
vision of  telephone  rates,  142. 

Chambers  of  arts  and  crafts,  organization  of, 
in  Germany,  41;  in  Wurtemberg,  46; 
French,  organization  of,  282;  activity  of, 
284  note. 

Chambers  of  commerce,  organization  of,  in 
Germany,  39,  40;  in  Wurtemberg,  46;  in 
Bavaria,  47;  activity  of,  in  cooperation  with 
public  officials,  63, 64;  activity  of,  in  extend- 
ing telephone  service,  Munich,  49,  51,  58; 
Ulm,  49;  Wurtemberg,  49,  60;  Stuttgart, 
50,  51,  57;  Frankfort,  50;  Augsburg,  50; 
Wiesbaden,  57;  Mannheim,  57;  Bremen, 
58;  Dresden,  58;  Essen,  59;  Krefeld,  59; 
Hanover,  59;  activity  of,  in  regulating  ex- 
change service,  at  Munich,  74;  activity  of, 
in  opposition  to  telephone  bill,  at  Frank- 
fort, 91;  activity  of,  in  demanding  reduc- 
tion of  rates,  at  Stuttgart,  133;  Munich, 
134,  135;  Nuremberg,  136;  activity  of,  in 
proposing  revision  of  rates,  at  Wiesbaden, 
138;  failure  of,  to  unite  for  revision  of  tele- 


phone rates,  139;  special,  Frankfort, 
praises  telephone  administration,  148;  pro- 
tests against  increase  of  rates,  148;  Munich, 
representatives  of,  at  meetings  of  commit- 
tee of  Reichstag  on  telephone  rates,  153; 
Munich,  declines  to  indorse  complaints  con- 
cerning telephone  rates,  162;  Stuttgart,  ad- 
vocates reduction  of  rates,  160;  Swiss,  Ba- 
sel, furnishes  guarantee  for  construction  of 
long-distance  lines,  218;  opinion  of,  226; 
French,  organization  of,  282 ;  functions  of, 
283;  Le  Havre,  undertakes  construction  of 
long-distance  lines,  292;  Paris,  undertakes 
construction  of  long-distance  lines,  292,  308 
note;  Paris,  vote  of,  concerning  telephone 
service,  304  note;  French,  organ  of,  refuses 
to  support  Millerand's  financial  policy, 
297;  complains  of  misconduct  of  telephone 
business,  305;  influence  of,  on  telephone 
rates,  329. 

Chambers  of  labor,  proposal  of,  in  Germany, 
42;  in  Wurtemberg,  47;  German,  bill  to  or- 
ganize, 202;  not  to  include  civil  servants, 
202. 

Chappe,  Claude,  inventor  of  optical  tele- 
graph, 4. 

Chaux-de-fonds,  La,  accident  to  telephone 
system  in,  239. 

Chicago,  telephone  commission  of  1907,  esti- 
mates reasonable  allowance  for  deprecia- 
tion, 172. 

Christiania,   competition   in   telephones   in, 

374- 

Clemenceau,  proposal  of,  to  regulate  right  of 
association  of  civil  servants,  350. 

Coblenz,  optical  telegraph  to,  5;  optical  tele- 
graph abandoned,  10. 

Code  Napoleon,  labor  provisions  of,  345,  346. 

Collective  bargaining,  advantages  of,  190. 

Cologne,  telephone  exchange  opened  in,  25; 
magneto  calling  apparatus  introduced  into 
exchange  system,  66;  advocates  municipal 
ownership  of  telephones,  93. 

Colson,  computation  of  French  debt,  284. 

Combes,  dissolves  unions  of  civil  servants, 

347- 

Commercial  and  Industrial  Association, 
Swiss,  memorial  of,  223  note. 

Common  battery,  introduction  of,  into  call- 
ing apparatus,  in  Germany,  66. 

Compagnie  beige  des  telephones,  Bell,  organi- 
zation of,  356. 

Compagnie  continentale  Edison,  holds  Euro- 
pean rights  of  Edison's  patent,  77. 

Competition,  free,  importance  to  society,  37; 
security  for  industrial  progress,  67;  effect 
of,  on  rates,  123;  wastefulness  of,  124;  im- 
practicability of,  125;  undesirableness  of, 
126;  nature  of,  442. 

Competition,  telephone,  in  Brussels,  356;  in 


INDEX 


475 


Italy,  366;  in  Christiania,  374;  in  Stock- 
holm, 374;  between  private  companies,  383 ; 
between  one  private  company  and  the  Swed- 
ish government,  384-388;  criticism  of,  388- 
390;  effect  of,  on  telephone  development, 
in  Europe,  423;  in  the  United  States,  437; 
failure  of,  in  telephone  business,  441. 

Competition,  of  telephone  with  telegraphs, 
55,  248,  275,  276, 458-460;  see  Telegraph. 

Concessions,  telephone,  terms  of,  in  Zurich, 
212;  in  France,  270;  in  Belgium,  357;  in 
Holland,  358;  criticism  of,  in  Holland,  361; 
in  Hungary,  365;  in  Italy,  366,  370,  371;  in 
Spain,  391,  392. 

Confederation  generate  du  travail,  nature  of, 
351  note. 

Conference,  German,  of  representatives  of 
economic  interests,  173;  discussion  of  tele- 
phone rates  at,  174. 

Congress,  international,  of  technical  experts, 
value  of,  74  note;  electro-technical,  at 
Frankfort,  91;  workmen's,  conduct  of 
French  delegates  at,  340. 

Conseil  d'Etat,  French,  decisions  of,  280  note, 
454- 

Constitution,  German,  telegraph  clause  of,  83, 
88;  interpretation  of,  85,  89. 

Contract  labor,  disadvantages  of,  in  Swiss 
telephone  industry,  263. 

Cooke,  William,  introduces  electro-magnetic 
telegraph  into  England,  7. 

Cooperation,  in  telephones,  in  Norway,  379; 
in  Sweden,  383 ;  difficulty  of,  290. 

Courage  du  capital,  19. 

Courier,  medieval,  3. 

Crisis,  German,  of  1902,  107-109;  weathered 
by  telephone  industry,  no,  ui;  Swiss,  of 
1902,  244;  French,  in  telephone  industry, 
295,  302,  334,  350. 

Crispi,  ministry  of,  fall  of,  369. 

Delany,  inventor  of  system  of  high-speed 
telegraphy,  68. 

Demand,  effect  of,  on  telephone  development, 
393,  394,  437,  43«. 

Denmark,  introduction  of  telephone  into,  389, 
present  state  of  industry  in,  390. 

Deutsche  Postbote,  organ  of  postal  employ- 
ees, 195. 

Deutsche  Postzeitung,  organ  of  postal  em- 
ployees, 194. 

Dolbear,  inventor  of  telephone  apparatus,  76. 

Dover,  optical  telegraph  to,  5. 

Drammen,  first  telephone  exchange  in,  375. 

Dynamo,  invention  of,  76. 

Economic  changes,  recent,  nature  of,  460. 
Edison,  inventor  of  telephone  apparatus,  76; 
inventor  of  incandescent  electric  light,  76; 
,  patent  rights  in  Germany  denied  by  courts, 


77;  telephone  system,  receives  French  con- 
cession, 271. 

Electrical  commission,  French,  powers  of,  by 
act  of  1895,  316;  reorganized  in  1906,  318; 
Norwegian,  organization  of,  326. 

Electrical  industry,  early  development  of,  76; 
progress  in,  76;  German,  opposition  to  tele- 
phone bills,  90;  German,  growth  of,  106; 
crisis  in,  108;  German,  output  of  machin- 
ery, no. 

Electrical  street  railways,  first  constructed  by 
Siemens  and  Halske,  77;  further  develop- 
ment of,  77;  development  of,  in  Switzer- 
land, 237,  240;  development  in  1895,  com- 
parative statistics  of,  319;  causes  of  slower 
development  in  Europe  than  in  America, 
320. 

Electric  Telegraph  Company,  buys  Wheat- 
stone's  patents,  8. 

Electro-technical  Union,  Swiss,  activity  of, 
241  note. 

Elektrotechnischer  Verein,  German,  speech 
by  Stephan  before,  57,  147;  appoints  com- 
mission to  investigate  relations  between 
telephone  and  power  circuits,  80;  opposes 
telephone  bill,  91. 

Elektrotechnische  Zeitschrift,  advertisements 
in,  108. 

Engineers,  telephone,  international  congress 
of,  74  note. 

England,  optical  telegraph  in,  5,  6. 

Europe,  public  ownership  of  telegraphs  in,  14. 

Experts,  technical,  international  congress  of, 
74  note. 

Faraday,  states  laws  of  electrical  induction,  7. 

Faucher,  statement  to  Chamber  of  Deputies, 
9- 

Federal  Council,  Swiss,  unique  body  of 
trained  administrators,  251. 

F6d6ration  G6ne"rale  des  associations  profes- 
sionnelles  des  employe's  civils  de  1'ltat,  or- 
ganization of,  348. 

Finances,  French,  condition  of,  284;  effect  of, 
on  acquisition  of  telephone  business,  285; 
peculiar  state  of,  bad  effect  of,  on  tele- 
phone business,  451;  Italy,  similar  situa- 
tion, 455;  German,  possible  bad  effect  of, 
on  telephone  business,  455. 

France,  sr.e  special  topics;  need  of  substitute 
for  medieval  carrier  in,  3;  optical  tele- 
graph in,  4, 6;  electrical  telegraph  in,  9,  12. 

Frankfort,  electrical  telegraph  to,  10;  tele- 
phone exchange  opened  in,  25;  early  electric 
street  railway  at,  77;  meeting  of  interna- 
tional electrical  congress  at,  91. 

Franklin,  Benjamin,  experiments  with  elec- 
tricity, 7. 

Funk,  dismissal  of,  by  Stephan,  for  trade- 
union  activity,  192. 


476 


INDEX 


Gauss,  invents  electro-magnetic  telegraph,  7. 
General   Telephone   Company,   in   Sweden, 

competition  with  Bell,  383;   competition 

with  government,  384-390. 
Geneva,  first  telephone  exchange  in,  213. 
Germany,  see  special  topics;  introduction  of 

telephone,  23. 
Gild,  of  glass  workers,  complains  of  telephone 

rates,  162;  of  blacksmiths  and  wheelwrights, 

complains  also,  163. 
Gothenberg,  long-distance  line  to,  384. 
Gower,  inventor  of  telephone  apparatus,  76. 
Gower  telephone  system,  receivesFrench  con- 
cession, 271. 

Gramme,  improves  dynamo,  76. 
Gray,  inventor  of  telephone  apparatus,  76. 
Gross-Lichterfelde,  first  electric  street  railway 

constructed  at,  77. 
Guarantees,  requirement  of,  as  condition  of 

extension  of  telephone  service,  53,  54,  217. 
Guesdes,  Jules,  reorganizes  French  socialists, 

340. 

Hague,  The,  municipal  ownership  in,  362. 

Halle,  conflict  between  electric  street  railway 
and  telephone  in,  84. 

Halske,  Siemens  and,  inventors  of  system  of 
high-speed  telegraphy,  68. 

Hamburg,  electrical  telegraph  to,  n;  tele- 
phone exchange  opened  in,  25;  magneto  call- 
ing apparatus  introduced  into  exchange  sys- 

t  tern,  66;  multiple  switchboard  introduced, 
69;  telephone  wires  put  underground,  85; 
exchange  system,  number  of  talks  per  sub- 
scriber, 149,  165. 

Hammacher,  Dr.,  statement  of,  in  Reichstag, 
concerning  rural  telephone  service,  143. 

Handelstag,  German,  organization  of,  40;  op- 
poses telephone  bills,  91;  urges  reduction 
of  flat  rates,  138;  criticises  policy  of  tele- 
phone administration,  138;  suggests  mea- 
sured-service rates,  138;  calls  attention  to 

I  need  of  public  call  offices,  141;  invited  to 
send  representatives  to  telephone  rates  con- 
ference, 173  note. 

Handwerkertag,  invited  to  send  representa- 
tives to  telephone  rates  conference,  173  note. 

Handwerks-  und  Gewerbekammertag,  organi- 
zation of,  42. 

Heilbronn,  telephone  exchange  opened  in,  30. 

Heliograph,  used  by  American  army,  5. 

Helios  electrical  works,  experience  during 
crisis  of  1902,  108. 

Helmholtz,  serves  on  commission  of  Elektro- 
technischer  Verein,  80. 

Hildesheim,  switchboard,  automatic,  Strowger 
system,  installation  of,  70. 

Hohenlohe,  Prince,  Imperial  Chancellor,  pol- 
icy of,  142. 

Holland,  competition  of  telephone  with  tele- 


graph in,  55 ;  introduction  of  telephone  into, 
358;  municipal  ownership  in,  359-363. 

Holy  head,  optical  telegraph  to,  5. 

Houston,  inventor  of  electrical  apparatus,  76. 

Hughes,  inventor  of  telephone  apparatus,  76. 

Hungary,  prohibits  use  of  grounded  circuit  by 
electric  street  railway,  97;  introduction  of 
telephone  into,  365;  public  ownership  in, 
365. 

Hiinningen,  optical  telegraph  to,  5. 

Independent  farmers'  lines,  in  America,  406. 

Induction,  nature  of,  in  telephone  circuits,  79; 
remedy  for,  81 . 

Initiative,  use  of,  in  Swiss  federal  govern- 
ment, 256. 

International  Telegraph  Bureau,  publishes 
comparative  telephone  statistics,  398. 

Iowa,  telephone  rates  in,  406. 

Italy,  introduction  of  telephone  into,  366; 
adoption  of  public  ownership  in,  372. 

Jablochkoff,  invents  arc  lamp,  76. 
Jaures,  consolidates  French  socialists,  341 . 
Jurisprudence,   relations  between  telephone 

and  power-circuit  undertakings,  German, 

84,  100,  104;  American,  105;  British,  323; 

status  of  telephone  industry,  German,  88; 

Swiss,  233;  French,  311. 

Kelvin,  Lord,  introduces  Bell's  telephone  into 
Europe,  23. 

Konsumverein  Neustadt-Magdeburg,  social- 
istic, civil  servants  not  permitted  to  become 
members  of,  205. 

Kraetke,  German  Secretary  of  State,  atti- 
tude of,  towards  postal  employees,  196; 
criticism  of,  197;  statements  in  Reichstag, 
199. 

Kronstadt,  optical  telegraph  to,  5. 

Krupp,  labor  policy  of,  189. 

Kummer,  electrical  works,  experience  during 
crisis  of  1902,  108. 

Labor  conditions,  see  Telephone  industry, 
French,  German,  and  Swiss. 

Lacave-Laplagne,  statement  to  Chamber  of 
Deputies,  9. 

Lahmeyer  electrical  works,  experience  dur- 
ing crisis  of  1902,  108. 

Laissez  faire,  theory  of,  37. 

Landtag,  Bavarian,  refuses  to  reduce  rates, 
I3S;  resolution  concerning  increase  of  rates, 

173. 
Landwirtschaftsrat,    Deutscher,   invited   to 

send   representatives  to  telephone   rates 

conference,  173  note. 
Lauffen-am-Neckar,  power  transmission  line 

from,  92. 
Lausanne,  first  telephone  exchange  in,  213. 


INDEX 


477 


Law,  administrative,  continental,  82. 

Lebon,  A.,  calls  attention  to  unreasonable 
height  of  French  telephone  rates,  333. 

Leeds,  electric  street  railway  at,  323. 

Legislation,  German,  telephone  lines  act  of 
1892, 96;  of  1899, 104;  rate  act  of  1899, 153; 
Swiss,  rate  act  of  1889,  223;  of  1892,  230; 
telephone  lines  act  of  1889,  236;  of  1902, 
242;  French,  telephone  lines  act  of  1885, 
311;  electrical  lines  act  of  1895,315;  of 
1906,  318;  concerning  trade-unions,  law  of 
1791.  345J  law  of  1884,345;  law  of  1901, 
346;  British,  electric  lighting  acts,  1882, 
and  1888,  322;  provisional  orders  under, 
324;  concerning  the  relations  of  power-cir- 
cuits to  telephones,  Hungarian  act  of  1888, 
326;  Italian  act  of  1893, 326;  Norwegian  act 
of  1896,  326;  Dutch  act  of  1904,  327;  con- 
cerning the  telephone  industry,  Belgian 
law  of  1883,  356;  Hungarian  law  of  1888, 
365;  Italian  law  of  1892,  369;  law  of  1903, 
371;  law  of  1907,372;  Norwegian  law  of 
1881,375. 

Leroy-Beaulieu,  Paul,  quotation  from,  on 
technical  progress,  67. 

Lighting,  electric  arc  lamp,  invented  by 
Jablochkoff,  76;  incandescent  lamp,  in- 
vented by  Edison,  76. 

Lille,  optical  telegraph  to,  4;  establishment 
of  telephone  exchange  in,  271. 

Limoges  plan,  for  financing  telephone  con- 
struction, 287;  criticism  of,  290,  291,  292, 
293;  attempted  improvement  of,  294;  re- 
sults of,  295;  condemned  by  Millerand,  295; 
partially  abandoned,  306. 

Liverpool,  optical  telegraph  from,  5. 

London,  optical  telegraph  from,  5  ;  experi- 
mental use  of  electro-magnetic  telegraph 
at,  7. 

Luxemburg,  introduction  of  telephone,  36; 
public  ownership  of  telephones  in,  success 
of,  428. 

Lyons,  establishment  of  telephone  exchange 
in,  271;  telephone  rates  in,  328. 

Magneto-calling  apparatus,  introduced  into 
Germany,  66. 

Malmo,  long-distance  line  to,  384. 

Malon,  Benoit,  leads  section  of  French  social- 
ists, 340. 

Mannheim,  telephone  exchange  opened  in,  25. 

Marseilles,  establishment  of  telephone  ex- 
change in,  271. 

Massachusetts  Highway  Commission,  inves- 
tigation of  New  England  telephone  rates 
by,  407  note. 

Mayence,  optical  telegraph  to,  5. 

Mescadier,  inventor  of  system  of  high-speed 
telegraphy,  68. 

Metternich,  neglects  telegraphs,  n. 


Meyer,  inventor  of  system  of  high-speed  tele- 
graphy, 68. 

Mill,  J.  S.,  quotation  from,  on  advantages  of 
monopoly  under  certain  circumstances,  126 
note. 

Millerand,  A.,  condemns  "Limoges"  plan  of 
financing  telephone  construction,  295;  at- 
tempts to  inaugurate  a  new  policy,  296, 
297;  results  of  ministry  of,  298-300;  de- 
clares French  telephone  rates  unreasonably 
high,  333 ;  excluded  from  consolidated  so- 
cialist party,  341;  first  ministry  of,  342, 
343 ;  recognizes  employees'  unions,  345; 
encourages  formation  of  unions,  347. 

Minimum  wage,  principle  of,  accepted  in 
Swiss  telephone  service,  260;  introduced 
into  French  telephone  service,  342. 

Mix  and  Genest,  manufacturers  of  telephone 
apparatus,  70;  maintain  dividends  during 
crisis  of  1902,  no. 

Monopoly,  problem  of,  in  telephone  business, 
442,  443;  objection  to,  444. 

Monopoly  rates,  disadvantages  of,  in  tele- 
phone business,  127. 

Morse,  improves  the  electro-magnetic  tele- 
graph, 7. 

Miilhausen,  telephone  exchange  opened  in,  25. 

Multiple  switchboards,  introduced  into  Ger- 
many, 69. 

Munich,  telephone  exchange  opened  in,  32; 
character  of  service  in,  74. 

Municipal  ownership,  in  Germany,  of  electric 
lighting  plants,  101;  of  electric  street  rail- 
ways, 101 ;  in  France,  less  common  than  in 
Germany,  312;  in  the  Netherlands,  effect 
of,  on  relations  between  telephone  and 
power-circuit  undertakings,  327  ;  in  Italy, 
372. 

Municipal  ownership  of  telephones,  in  Ger- 
many, advocated  by  city  of  Cologne,  93; 
advocated  by  German  Stadtetag,  94;  re- 
sults of, 94  note;  in  the  Netherlands,  causes 
of.  3595  results  of,  360,  362;  criticism  of, 
362,  363;  in  Italy,  371. 

Municipalities,  French  and  German,  powers 
of,  comparison  of,  312. 

Murray,  inventor  of  system  of  high-speed 
telegraphy,  68. 

Mutual  telephone  systems,  in  Norway,  379 ; 
in  Sweden,  383. 

Nantes,  establishment  of  telephone  exchange 
in,  271. 

Napoleon  III,  extends  electrical  telegraph,  21 ; 
favors  private  ownership  of  public  utilities 
subject  to  public  regulation,  268;  grants 
right  to  strike  to  trade-unions,  345. 

National  Bell  Telephone  Company,  agree- 
ment of,  with  Western  Union  Telegraph 
Company,  460  note. 


INDEX 


National  Telephone  Company,  conduct  of  ex- 
change business  in  Great  Britain  by,  321; 
protection  of,  against  power-circuit  under- 
takings, 322. 

Negre,  Maurice,  establishes  telephone  system 
in  Nimes,  289. 

Netherlands,  The,  see  Holland;  electrical 
telegraph  in,  12. 

Neue  Post,  administration  organ  in  German 
postal  service,  195. 

New  England  Telephone  and  Telegraph 
Company,  comparison  of  rates  of,  with 
Austrian  rates,  407-409. 

New  York,  effect  of  substitution  of  message 
for  flat  rates  in,  168;  telephone  rates  in,  406. 

Nieuwediep,  electrical  telegraph  to,  13. 

Nimes,  working  of  Limoges  plan  of  financing 
telephone  construction  in,  289. 

Norway,  introduction  of  telephone  into,  374; 
public  ownership,  beginnings,  377;  rural 
telephony  in,  378,  379,  380;  long-distance 
telephony  in,  382. 

Nuremberg,  telephone  exchange  opened  in, 
34- 

Oersted,  discovers  relation  between  galvanic 
current  and  magnetism,  7. 

Organization,  of  telephone  industry,  success- 
ful, in  Germany,  447;  in  Switzerland,  456; 
unsuccessful,  in  France,  448;  vicious  ad- 
ministrative practices  in,  in  France,  449, 
450. 

Paris,  optical  telegraph  line  from,  4,  6;  urban 
telegraph  in,  21 ;  establishment  of  telephone 
exchange  in,  271 ;  comparison  of  early  rates 
in,  with  those  in  German  and  Swiss  cities, 
272 ;  congestion  of  telephone  traffic  in,  303 ; 
fire  in  main  exchange  in,  309;  telephone 
rates  in,  328. 

Party  lines,  use  of,  in  Germany,  71 ;  in  Amer- 
ica, 409;  in  Austria,  409,  410. 

Pelletan,  denies  right  of  civil  servants  to 
strike,  349  note. 

Pneumatic  tube  service,  in  European  capi- 
tals, 21. 

PodbHski,  von,  Imperial  Secretary  of  State, 
revision  of  telephone  rates  under,  143;  es- 
tablishes rural  call  offices,  159;  attitude  of, 
towards  organizations  of  employees,  193. 

Politics.  French,  disintegration  of  parties  in, 
341 ;  peculiar  state  of,  bad  effect  of,  on  tele- 
phone business,  451,  452. 

Politics,  German,  two-party  system  in,  does 
not  exist,  185. 

Pollak,  and  Virag,  inventors  of  system  of 
high-speed  telegraphy,  68. 

Portsmouth,  optical  telegraph  to,  5. 

Postal  development,  comparative,  statistics 
of,  426. 


Power  circuits,  danger  from,  to  telephone,  78; 
relations  of,  to  telephones,  in  the  United 
States,  105;  in  Germany,  105;  in  Switzer- 
land, 242;  in  France,  318;  in  Great  Britain, 
323;  in  Hungary,  326;  in  Italy,  326;  in 
Norway,  326;  in  the  Netherlands,  327. 

Private  branch  exchanges,  use  of,  in  Ger- 
many, 71. 

Private  ownership  of  telephones,  on  conti- 
nent of  Europe,  267;  advantages  of,  sub- 
ject to  public  regulation,  267;  in  accord 
with  policy  of  Napoleon  III,  268;  extent 
°fi  393J  effect  of,  on  development,  394; 
reasons  for  abandonment  of,  373,  395. 

Procedure,  parliamentary,  in  France,  451. 

Progress,  technical,  65,  75,  457-460. 

Prussia,  optical  telegraph  in,  5;  electrical 
telegraph  in,  10;  opened  to  public,  II. 

Public  ownership,  of  telephones,  adoption  of, 
in  Germany,  23;  in  Switzerland,  213;  in 
France,  280;  in  Belgium,  358;  in  Holland, 
359;  in  Austria,  364;  in  Hungary,  365;  in 
Italy,  372;  reasons  for,  373,  395;  success 
of,  in  Germany,  445;  in  Switzerland,  252, 
445;  lack  of  success  of,  in  France,  445; 
explanation  of  different  results,  446-449  ; 
organization  of  administration  under,  in 
Germany,  447;  in  France,  448;  in  Switz- 
erland, 251,  456;  technical  progress  under, 
security  for,  457-460;  advantage  of,  461; 
success  of,  in  telephone  industry,  reasons 
for,  462;  results  of,  463. 

Railway  councils,  in  Prussia,  district,  44;  cen- 
tral, 44;  in  Wurtemberg,  45;  in  Bavaria, 
48. 

Rates,  telephone,  reasonable,  what  are  they? 
112,  122. 

Rathenau,  Emil,  founds  Allgemeine  Elek- 
trizitats-Gesellschaft,  77;  interprets  lesson 
of  crisis  of  1902  in  German  electrical  indus- 
try, 1 08. 

Reichstag,  German,  on  revision  of  telephone 
rates,  142, 163;  attitude  of,  on  treatment  of 
public  employees,  197. 

Reichstag,  committee  of,  rejects  govern- 
ment's telephone  bill,  91 ;  accepts  proposals 
of  electro-technical  congress,  94;  on  tele- 
phone rates,  report  of,  149,  151,  152. 

Reis,  Philipp,  inventor  of  telephone,  22. 

Remmers,  activity  of,  in  German  postal  em- 
ployees' organizations,  195. 

Rheims,  establishment  of  telephone  exchange 
in,  273. 

Rotterdam,  municipal  ownership  in,  362. 

Roubaix,  establishment  of  telephone  ei- 
change  in,  273. 

Rouen,  optical  telegraph  to,  6. 

Rouvier,  fall  of  ministry  of,  305;  denies  right 
of  civil  servants  to  strike,  349. 


INDEX 


479 


Rowland,  inventor  of  system  of  high-speed 

telegraphy,  68. 
Russia,  optical  telegraph  in,  5. 

St.  Petersburg,  optical  telegraph  from,  5. 

San  Francisco,  message  rates  introduced  in, 
386. 

Sarrien,  succeeds  Rouvier  at  head  of  French 
ministry,  305. 

Saxony,  electrical  telegraph  in,  TO. 

Schuckert,  engages  in  electrical  business,  77; 
electrical  worses,  experience  during  crisis  of 
1902,  108;  fusion  with  Siemens  and 
Halske,  109. 

Sembat,  condemns  policy  of  telephone  ad- 
ministration, 301 ;  his  predictions  verified, 

3<>5- 

Siemens,  Werner,  constructs  telegraph  lines, 
10;  espouses  cause  of  public,  n;  invents 
dynamo,  76;  serves  on  commission  of  Elek- 
trotechnischer  Verein,  80. 

Siemens  and  Halske,  inventors  of  system  of 
high-speed  telegraphy,  68;  with  Schuckert 
works,  associated  with  telephone  authorities 
in  study  of  technical  improvements,  68; 
manufacturers  of  telephone  apparatus,  70; 
construct  first  electric  street  railway,  77; 
experience  during  crisis  of  1902,  108;  ab- 
sorbs Schuckert  electrical  works,  109. 

Social  Democracy,  position  of,  in  Germany, 
185;  special  legislation  against,  188;  un- 
precedented growth  of,  1 88  ;  aim  of,  204; 
attitude  of  government  toward,  204,  205. 

Socialism,  in  France,  339;  history  of,  340; 
in  Switzerland,  comparison  with  German, 
253;  reasons  for  weakness  of,  254. 

Societe  ge"ne"rale  des  telephones,  formation  of, 
271 ;  struggle  for  extension  of  concession  of, 
277,  278,  279;  expelled  from  industry  by 
force,  280. 

Society  for  the  Promotion  of  the  Observance 
of  the  Sabbath,  activity  of,  in  Switzerland, 

255- 

So'mmering,  invents  electro-chemical  tele- 
graph, 7. 

Spain,  introduction  of  telephone  into,  390; 
present  state  of  industry  in,  391. 

Spencer,  Herbert,  antipathy  of,  to  govern- 
mental monopolies,  444. 

Spoils  system,  in  France,  350. 

Sprague,  invents  electric  street  railway  sys- 
tem, 77. 

Stadtetag,  German,  advocates  municipal 
ownership  of  telephones,  93. 

State  railroads,  German,  labor  conditions  in, 
207  note. 

Statistics,  value  of,  420. 

Stephan,  Heinrich  von,  introduces  telephone 
into  Germany,  23 ;  extends  use  of  telephone, 
24,  25;  speaks  at  meeting  of  Elektrotech- 


nischer  Verein,  57;  concedes  unreasonable- 
ness of  flat  rates  for  exchange  service,  138; 
speaks  before  Elektrotechnischer  Verein, 
147;  hostility  of,  to  organizations  of  em- 
ployees, 192, 

Stettin,  electrical  telegraph  to,  n. 

Stock,  R.,  and  Company,  manufacturers  of 
telephone  apparatus,  70. 

Stockholm,  competition  in,  between  private 
systems,  failure  of,  383;  between  private 
system  and  governmental  system,  384-390. 

Strasbourg,  optical  telegraph  to,  5. 

Strike,  right  to,  of  civil  servants,  in  Germany, 
200,  201;  in  France,  348,  349;  bill  to  regu- 
late, 351. 

Strowger  system  of  automatic  switchboard, 
introduced  into  Germany,  70. 

Studiumgesellschaft,  organized  to  promote 
study  of  technical  improvements,  68. 

Stuttgart,  telephones  in,  62;  increase  of  tele- 
phone rates  in,  161. 

Switchboards,  improvement  of,  in  Germany, 
69;  manufacturers  of,  in  Germany,  70. 

Switzerland,  see  special  topics;  electrical  tele- 
graph in,  13 ;  competition  of  telephone  with 
telegraph,  55. 

Syndicalismc,  tactics  of,  in  French  labor 
movement,  344;  the  action  directe,  346. 

Syndikus,  duties  of,  43. 

Technical  expert,  value  of,  72,  73,  457,  459. 

Technical  progress,  see  Telephone  industry, 
under  separate  countries. 

Telegraph,  competition  of  telephone  with,  55, 
248,  275,  276,  458;  revenues,  protection  of, 
from  telephone  competition,  in  Italy,  366, 
370,  371 ;  in  Norway,  375,  376, 381 ;  in  Swe- 
den, 384. 

Telegraph,  electro-chemical,  invention  of,  7. 

Telegraph,  electro-magnetic,  invention  of,  7; 
improvement  of,  8;  commercial  exploita- 
tion of,  8;  public  ownership  of,  in  France, 
9,  12;  Wurtemberg,  10;  Prussia,  10;  Aus- 
tria, II ;  Belgium,  12;  the  Netherlands,  12; 
Switzerland,  13;  other  countries,  14;  public 
ownership,  reasons  for,  15. 

Telegraph,  optical,  invention  of,  4;  extension 
of,  5 ;  defects  of,  6 ;  neglected  by  Austria,  1 1 ; 
abandoned  by  Prussia,  10;  by  France,  12. 

Telegraph  development,  comparative,  statis- 
tics of,  426. 

Telephone,  invention  of,  22;  introduction  of, 
into  Germany,  23;  into  Wurtemberg,  27; 
into  Bavaria,  31;  into  Luxemburg,  36;  in- 
troduction of,  into  Belgium,  355;  public 
ownership  of,  in  Belgium,  358;  introduction 
of,  into  Holland,  358;  public  ownership  of, 
in  Holland,  359;  introduction  of,  into  Aus- 
tria, 363;  public  ownership  of,  in  Austria, 
364;  introduction  of,  into  Hungary,  365; 


4&> 


INDEX 


public  ownership  of,  in  Hungary,  365;  in- 
troduction of,  into  Italy,  366;  public  owner- 
ship of,  in  Italy,  372;  introduction  of,  into 
Norway,  374;  into  Sweden,  382;  into  Den- 
mark, 390;  into  Spain,  391 ;  competition  of, 
with  telegraph,  55,  248,  275,  276,  366,  370, 
37i»  375.  376,  381,  384.  458;  relations  of, 
to  power-circuit  undertakings,  see  Juris- 
prudence, Legislation,  and  Power-circuits. 

Telephone  administration,  organization  of,  in 
Germany,  38,447,  448,  455;  in  Switzerland, 
211,  251,  252,  456;  in  France,  281,  448. 

Telephone  apparatus,  manufacturers  of,  in 
Germany,  70. 

Telephone  development,  comparison  of  long- 
distance traffic  in  Germany  and  United 
States,  71 ;  in  1895,  in  the  United  States 
and  in  Switzerland,  231 ;  in  Stockholm,  as 
result  of  competition,  387 ;  varying,  in  con- 
tinental Europe,  causes  of,  393,  394;  com- 
parative, value  of,  418-420;  statistics  of, 
for  1885  and  1895,421;  discussion  of,  421- 
424;  in  leading  European  capitals,  422;  in 
German  and  Swiss  cities,  425;  statistics 
of,  for  1906,  426;  discussion  of,  427-430; 
comparative,  in  the  United  States  and 
Germany,  431;  explanation  of  differences, 
432-438. 

Telephone  exchanges,  first  opened  in  Ger- 
many, 25;  opened  in  Wurtemberg,  30; 
Bavaria,  32;  establishment  of,  policy  of 
German  telephone  authorities,  60;  Ba- 
varian, 60;  Wurtemberg,  61;  register  of 
talks  in,  need  for  invention  of,  150;  Ger- 
man, night  service  in,  introduction  of,  415 
note. 

Telephone  finances,  Bavarian,  170-173;  Ger- 
man, 176, 178;  Swiss,  early  prosperous  con- 
dition of,  233;  deficit  in,  243,  244;  renewal 
of  prosperity  in,  245;  French,  state  of,  335- 
338. 

Telephone  industry,  British,  322  note,  460 
note;  French,  declared  part  of  telegraph 
monopoly,  269;  first  franchise  in,  270; 
competition  in,  failure  of,  271 ;  dissatisfac- 
tion with  private  enterprise,  272;  begin- 
nings of  public  ownership,  273;  extent  of, 
in  1887,  275;  beginnings  of  long-distance 
business,  275;  decision  for  public  owner- 
ship, 276;  organization  of,  281;  finances  of, 
286;  Limoges  plan  of  management  of,  287; 
extended  to  whole  system,  288;  operation 
of,  289,  290;  criticism  of,  290-293;  finances 
of,  effect  on  conduct  of  telephone  business, 
297,  298;  criticism  of  financial  policy, 
301;  results  of  criticism,  302;  rural  call 
offices,  development  of,  under  Millerand, 
299>  300;  crisis  in,  302, 334;  causes  of  crisis 
in»  303;  results  of  crisis,  305, 306;  condition 
of  service  in  1907,  307;  personnel,  incompe- 


tence of,  304,  308,  309;  use  of  private  pro- 
perty by,  311;  relations  of,  to  other 
branches  of  electrical  industry,  at  first,  310, 
313, 314;  as  modified  by  act  of  1895, 315;  as 
further  modified  by  act  of  1906, 318;  causes 
of  act  of  1906, 317;  finances  of,  mismanage- 
ment of,  334,  335;  state  of  finances  in,  336; 
results  of  mismanagement  of,  337;  labor 
situation  in,  attitude  of  government 
towards  unions  of  employees,  348-351; 
mismanagement  of,  recognition  of,  453;  pro- 
posed remedies  for,  454;  German,  crisis  of 
1902  weathered  by,  no;  labor  situation  in, 
conditions  of  employment,  183;  relations 
between  employer  and  employee  in,  184; 
organization  of  employees  in,  191 ;  revision 
of  wages  in,  197;  attitude  of  authorities 
towards  labor  organizations,  200;  criticism 
of,  201;  establishment  of  workmen's  com- 
mittees, 202,  203  note;  status  of  employees, 
206;  legal  status  of,  declared  part  of  tele- 
graph monopoly,  23, 88;  long-distance  traf- 
fic, development  of,  429;  technical  progress, 
territorial  exchange  systems,  25 ;  rural  call 
offices,  in  Wurtemberg,  61;  in  Bavaria,  63; 
in  German  imperial  telephone  service,  63; 
calling  apparatus,  66,  70;  source  of  energy, 
68,  70;  switchboards,  69,  70;  automatic  ex- 
changes, 71;  metallic  circuits,  necessity  for, 
81;  underground  wires,  introduction  of, 
85;  metallic  circuits,  introduction  of,  con- 
sidered by  German  telephone  administra- 
tion, 98;  (introduced  by  American  Bell 
Telephone  Company,  100;)  metallic  cir- 
cuits, expense  of  introduction  of,  in  Ger- 
many, 149;  long-distance,  145;  call  offices, 
public,  establishment  of,  160;  automatic 
sub-exchange  in  Bavaria,  410;  automatic 
pay  stations  in  Germany,  411;  Swiss,  de- 
velopment of,  establishment  of  govern- 
mental exchanges,  213;  development  of, 
establishment  of  rural  call  offices,  213, 
247;  establishment  of  long-distance  lines, 
214;  rapid  development  of,  215;  long-dis- 
tance business  policy  with  respect  to  de- 
velopment of,  217;  criticism  of,  218;  work- 
ing of,  225,  226;  development  of,  248; 
effect  of,  on  telegraphs,  high  standard 
of  service  in,  249;  popularity  of,  250;  fi- 
nances of,  successful  management  of,  246, 
249;  increase  of  salaries,  effect  of,  244; 
labor  situation  in,  254;  weekly  day  of  rest 
in,  255 ;  petition  of  telegraph  and  telephone 
laborers,  257 ;  reply  to,  by  Federal  Council, 
258;  labor  situation  in,  in  1897,  258;  re- 
jection of  principle  of  a  minimum  wage, 
259;  acceptance  of  principle  of  a  minimum 
wage,  260;  labor  situation  in,  in  1907, 261 ; 
revision  of  wages  in,  262  ;  direct  employ- 
ment of  labor  by  state,  advantages  of,  263; 


INDEX 


481 


legal  status  of,  declared  part  of  federal  tele- 
graph monopoly,  211;  legal  status  of,  use 
of  private  property  for,  233 ;  relations  be- 
tween telephone  and  other  electrical  indus- 
tries, 234,  235;  controversy  over,  237,  238; 
termination  of,  240,  241;  introduction  of 
metallic  circuits  for  grounded  lines,  246; 
organization  of,  251,  456;  comparison  with 
German,  252;  public  organization  of,  suc- 
cess of,  252,  421,424. 

Telephone  industry,  technical  progress  in, 
246;  discussion  of,  at  international  congress 
of  telephone  engineers,  74  note;  early  in- 
ventors in,  76;  in  municipal  systems  in 
Holland,  362 ;  in  Sweden,  as  result  of  com- 
petition, 385,  388;  security  for,  under  pub- 
lic ownership,  457-460. 

Telephone  legislation,  see  Legislation. 

Telephone  lines,  injury  to,  from  power  cir- 
cuits, 78. 

Telephone  rates,  American,  comparison  of, 
with  Austrian,  406-409;  Austrian,  revision 
of,  1907,  402-405;  criticism  of  Austrian 
rates,  405 ;  comparison  with  American  rates, 
406-409 ;  further  criticism  of  Austrian 
rates,  409-413;  comparative,  396;  useless- 
ness  of  comparisons  of,  397;  varieties  of 
service  offered,  398,  399,  400;  progress  in 
rate-making,  401 ;  ftat,  need  for  differentia- 
tion of,  137;  unreasonableness  of,  conceded 
by  Stephan,  138;  effect  of,  162;  proposal  to 
abolish  by  German  telephone  administra- 
tion, 1 66 ;  French,  further  reduction  of, 
330,'  in  suburban  service,  332;  unreason- 
able height  of,  333;  minor  reductions  of, 
333;  remain  unreasonably  high,  335;  re- 
duction of,  after  purchase  of  business  by 
government,  328;  German,  early  flat  rates, 
128,  130;  reduction  of,  in  Wurtemberg, 
130,  134;  in  imperial  telephone  service, 
130;  reasonableness  of,  132;  official  pro- 
posal for  revision  of,  in  1898,  144;  act 
of  1899,  153;  revision  of,  effects  of,  157; 
revision  of,  in  Bavaria,  153;  in  Wurtemberg, 
IS4;  agitation  for  reduction  of,  reappear- 
ance in  Wurtemberg,  160 ;  revision  of, 
in  Wurtemberg,  161;  revision  of,  case  of 
German  telephone  administration  for, 
164;  price  per  call  in  German  exchanges, 
165  ;  proposal  for  revision  of  exchange, 
167;  long-distance,  169;  revision  of,  propos- 
als of  1908  for,  criticism  of,  180,  181,  412; 
long-distance,  proposed,  comparison  of, 
with  American,  413,  414 ;  long-distance 
"urgent,"  416;  economy  of,  417;  policy  °f 
telephone  administration  concerning,  satis- 
faction with,  417;  measured  service  as  basis 
of,  suggested  by  German  Handelstag,  138; 
difficulty  of  adoption  of,  139;  adoption  of, 
in  Germany,  144-153;  >n  Switzerland,  219- 


223;  introduced  into  France,  331;  but  not 
into  Paris,  335;  effect  of  substitution  of,  for 
flat  rates,  168;  message  rates,  advantages  of, 
first  indicated  by  Swiss  Federal  Council,  220 ; 
Swedish,  effect  of  competition  upon,  386; 
Swiss,  original  schedule  of,  215;  reasonable- 
ness of,  216;  criticism  of,  218;  proposal  for 
revision  of,  219;  adoption  of  measured  ser- 
vice as  basis  of,  220 ;  effect  of  revision  of 
1889,  227;  renewal  of  agitation  for  revision 
of,  227;  proposals  for  further  reductions, 
228,  229 ;  effect  of  revision  of  1894,  230, 
243 ;  policy  of  government  concerning, 
general  criticism  of,  231. 

Telephone  service,  comparative,  resume"  of, 
398,  399,  400;  activity  of  chambers  of  com- 
merce concerning,  at  Munich,  49,  51,  58 ; 
Ulm,  49;  Nuremberg,  49,  60;  Stuttgart,  50, 
51,  52,  57;  Frankfort,  50;  Augsburg,  50; 
Wiesbaden,  57;  Mannheim,  57;  Bremen, 
58  ;  Dresden,  58  ;  Essen,  59 ;  Krefeld,  59 ; 
Hanover,  59;  utility  of,  115;  cost  of,  118; 
demand  for,  effect  of,  on  development,  393, 
394,  437,  438;  in  Austria,  409,  41 1 ;  in  rural 
districts  in  Germany,  433, 436;  in  the  United 
States,  434,  435- 

Temps,  Le,  summarizes  status  of  civil  ser- 
vants, 350. 

Tenner,  Armin,  representative  of  Bell  inter- 
ests in  Wurtemberg,  27. 

Thomson,  inventor  of  electrical  apparatus,  76. 

Thomson-Houston,  electric  street  railway 
system  of,  77. 

Ticino,  canton  of,  connection  of,  with  rest  of 
Switzerland  by  long-distance  telephone, 
225,  226. 

Tourcoing,  establishment  of  telephone  ex- 
change in,  274. 

Trade-unionism,  in  France,  339;  legal  posi- 
tion of,  344-346;  in  public  employment,  at- 
titude of  government  towards,  346-351 ; 
right  of  civil  servants  to  strike,  349;  in  Ger- 
many, among  civil  servants,  extent  of,  204 
note;  in  Switzerland,  comparison  with  Ger- 
man, 253;  establishment  of  central  labor 
unions  in  Swiss  cities,  256 

Trade-unions,  German,  formation  of,  in  civil 
service,  187;  unprecedented  growth  of,  188. 

Ulm,  telephone  exchange  opened  in,  31. 

Union  Elektrizitats-Gesellschaft,  acquires 
Thomson-Houston  patents,  78;  experience 
during  crisis  of  1902,  108;  absorbed  by  AU- 
gemeine  Elektrizitats-Gesellschaft,  109. 

United  States,  jurisprudence  in,  105;  tele- 
phone service  in,  24,  71,  406,  409.  4io;  tele- 
phone rates  in,  406-417  passim;  telephone 
development  in,  430-438  passim;  competi- 
tion of  telephone  with  telegraphs  in,  460 
note. 


482 


INDEX 


Van  den  Peere,  description  of  competition  in 
Brussels  by,  356. 

Vanderbilt,  Commodore,  remark  ascribed  by 
tradition  to,  47. 

Van  der  Borght,  quoted,  14;  discusses  activ- 
ity of  chambers  of  commerce  in  extending 
telephone  service,  52;  criticizes  require- 
ment of  guarantees  from  chambers  of  com- 
merce, 53;  modifies  his  criticism,  56;  sug- 
gests scheme  for  revision  of  telephone  ex- 
change rates,  140. 

Van  Rysselberghe,  inventor  of  device  for  sim- 
ultaneous telegraphy  and  telephony,  276. 

Venice,  optical  telegraph  to,  5. 

Verband  Berliner  Spezialgeschafte,  protests 
at  increase  of  telephone  rates,  175. 

Verband  Detitscher  Post-  und  Telegraphen- 
Arbeiter  und  Handwerker,  organization  of, 
198. 

Verband  Deutscher  Post-  und  Telegraphen- 
Assistenten,  organization  of,  191 ;  reorgani- 
zation of,  193. 

Verband  der  Deutschen  Post-  und  Tele- 
graphen-Unterbeamten,  organization  of, 
194;  disorganization  of,  195. 

Verein  fur  Sozialpolitik.unsuccessful  attempt 
of,  to  investigate  labor  conditions  in  Ger- 
man state  railroads,  207  note. 

Vertretung  der  Industriellen,  invited  to  send 
representatives  to  telephone  rates  confer- 
ence, 173  note. 

Vienna,  urban  telegraph  in,  21 ;  first  telephone 
exchange  in,  363. 

Virag,  Polak  and,  inventors  of  system  of  high- 
speed telegraphy,  68. 


Waldeck-Rousseau,  reorganization  of  cabinet 
at  death  of,  298. 

Wassilieff,  Dr.,  secretary  of  central  labor 
union  at  Berne,  256;  formulates  grievances 
of  laborers  in  employ  of  Swiss  govern- 
ment, 257. 

Weber,  invents  electro-magnetic  telegraph,  7. 

Weidert,  Kommerzienrat  von,  public  ser- 
vices of,  48. 

Western  Union  Telegraph  Company,  agree- 
ment of,  with  National  Bell  Telephone 
Company,  460  note. 

Weston,  inventor  of  electric  lighting  appara- 
tus, 76. 

Wheatstone,  improves  electro-magnetic  tele- 
graph, 7;  inventor  of  system  of  high-speed 
telegraphy,  68;  invents  dynamo,  76. 

William  II,  message  of,  on  social  reform,  188. 

Winterthur,  first  telephone  exchange  in,  213. 

Wireless  telegraphy  and  telephony,  458. 

World's  fair  of  1878,  at  Paris,  telephone  on 
exhibition  at,  268. 

Wurtemberg,  see  under  Germany;  electrical 
telegraphs  in,  10;  introduction  of  telephone, 
27;  competition  of  telephone  with  tele- 
graph, 55. 

Zemp,  Swiss  Federal  Councillor,  services  of, 
242. 

Zurich,  concession  for  telephone  exchange  in, 
212;  repurchased  by  government,  214;  con- 
flict between  telephone  and  municipal  au- 
thorities in,  233;  telephone  exchange  in,  de- 
stroyed by  fire,  238. 

Zurich  Telephone  Company,  rates  of,  215. 


fttett** 

CAMBRIDGE  .  MASSACHUSETTS 
U   .   S    .  A 


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